NEW DELHI, June 1: The Reserve Bank of India (RBI) has issued a directive to banks to put a brake on credit enhancements to all non banking finance companies (NBFCs). As a result of the directive, all in-principle clearances issued to NBFCs have been frozen.

According to a senior banker, in the current ``uncertain'' environment no banks will entertain any proposals from NBFCs irrespective of the degree of transparency in the company's figures.

This RBI diktat will deliver a hard blow to NBFCs as most of them had managed to draw their bankers into ``taking a favourable look at their proposals,'' after prolonged wooing. NBFCs can leverage themselves to an extent of ten times their net owned funds with banks and instituions.Most NBFCs are currently leveraged with banks to an extent of two or three times only. The majority of their resources have been raised directly through fixed deposits.

As a result of the CRB fall-out investors have begun to shy away from NBFCs. According to market sources, the in-flow of fresh deposits has slowed down since the CRB crash. Some estimates put the drop in fresh deposits to an extent of 50 % compared to collection figures immediately before the CRB crash. Fixed deposit collections have dropped for manufacturing companies as well by similar margins.

The RBI directive has cast a pall of gloom over NBFCs as their woes on the liabilities side are ``now complete with both the banking system and the retail market deciding to spurn them.''

On the assets side too NBFCs are facing problems with an increasing number of corporates delaying payments. The best of corporates are have turned defaulters over the last few months. Faced with slackening demand manufacturing companies are refusing to pay-up. Going to court is no solution as a protracted battle is what borrowing companies desire.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.