NEW DELHI, June 24: The Reserve Bank of India's supervisory role over non-banking financial companies (NBFCs) and banks came in for a critical appraisal at a meeting of the parliament's standing committee on finance here on Tuesday.

RBI governor C Rangarajan and senior officials of the finance ministry were at pains to explain the extent of supervision that the central bank could impose on the NBFCs in view of their mushrooming growth over the past few years.

The committee members, according to sources, specifically questioned the quality of supervision that the central bank was able to impose on NBFCs. The reference was clearly to the CRB Capital Markets collapse.

Although the discussion took place against the backdrop of the CRB Caps issue, the debate skirted the Bhansali episode with an understanding that the scam would be discussed separately.

According to finance ministry sources, the crux of Rangarajan's explanation was that RBI was in no position to keep a vigil on each and every action of a finance company or a bank. More so when there was a mushrooming growth of such organisations.

The silver lining now, however, was that the unchecked growth of such NBFCs will be halted as a result of stricter control norms, it was reportedly said. The committee members were credited with the view that the CRB Caps episode and the Bank of Rajasthan fraud were the result of a lack of proper supervision.

It is learnt several MPs refused to take the explanation that the mushrooming growth of NBFCs was responsible for the CRB Caps fall. They sought to pin the blame on the central bank for the unchecked growth of these firms.

The past few weeks have witnessed a build-up against the central bank on the issue of CRB Cap scam. The last meeting of the standing committee came down heavily upon the RBI and, indeed, refused to discuss the details in the absence of governor Rangarajan.

A number of committee members had then taken strong exception to Rangarajan's absence and demanded that the governor present himself at the next meeting. Rangarajan's deputy, SP Talwar, stood in for the governor at the last meeting.

Meanwhile, a high-level team of Sebi, led by chairman DR Mehta, was present in the capital on Tuesday expecting to be called at the standing committee meeting to depose over CRB Caps fall. The team was, however, not called out.

It is learnt that an internal enquiry of the finance ministry had come to the conclusion that systemic failure within the central bank, the nodal regulatory authority of the NBFCs, led to the CRB Caps fall.

Of the 45,000-and-odd NBFCs, fewer than 1,000 were registered with the RBI at the time the CRB Caps fall.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.