The memorandum added that with severe RBI restrictions on fund mobilisation by NBFCs (depending on their net-owned funds and their credit rating), their cost of funds hovers around 14-16 per cent (as against 7-8 per cent for most banks), because of which they end up making a 4-5 per cent loss on the statutory liquidity requirement (SLR) investments too."Therefore the Vasudev Committee proposal to increase the SLR applicable to NBFCs, from the present 12.5 per cent to 25 per cent, could ring adeath-knell for this ailing sector and should not be implemented," says ALFS executive director, Mahesh Thakker.

Market analysts feel that with less than 7,500 reliable and financially sound NBFCs getting the RBI registration (out of a total of about 37,500 which applied), and with stringent control and monitoring norms already in place, there is hardly any scope for fraudulent practices. Despite these, the ALFS has proposed stiff penalties on those NBFCs which would be involved with discounting accomodation bills.

The memorandum also seeks simpler norms for credit support from banks to NBFCs, as suggested by the Vasudev committee, to bridge their asset- liability mismatch, and suggests that banks could extend finance by way of subscription to preference shares, non-convertible debentures, term loans and cash credit facilities at concessional rates.

Another important leverage sought by the NBFCs is that the banks should now be permitted to rediscount the bills discounted by NBFCs in the retail as wellas `leasing & hire purchase' business. The stringent on-site and off-site inspection for NBFC's activities will ensure that the accomodation bills are not discounted, the memorandum added.

Recently the Reserve Bank had permitted the term lending institutions and investment banks to rediscount bills discounted by the NBFCs, arising from the sale of commercial vehicles, including light commercial vehicles, "subject to normal lending safeguards". The same provision should now be extended to banks too, covering the entire NBFC business.