The RBI move - announced in the credit policy - follows the recent collapse of the Kuber group which sunk with nearly Rs 500 crore of investors money. Several finance companies which are currently operating with low NOF are on the verge of closure. Hundreds of finance companies had downed shutters in the last two years and investors are yet to get back hundreds of crores of rupees from such companies.

"The increase in NOF requirements for new NBFCs, which are incorporated on or after April 20, 1999, will tighten the entry barriers and ensure that only professionally managed and committed players enter this vital sector. The low capitalisation had reduced NBFCs ability to withstandcyclical fluctuations in business and does not help tide over the asset-liability mismatch inherent in the operations of NBFCs face due to the short tenure (around one year) of their deposits and the comparatively longer tenure of their advances," said an official of a finance company.

However, NBFC sources said that by far the most significant proposal made by the RBI governor is classifying as priority sector lending the `incremental' credit given to NBFCs by banks for on-lending to small road and water transport operators and to units in the tiny sector, over March 31, 1999.

Out of around 8,802 applications of NBFCs which were eligible for registration on the basis of minimum Net Owned Funds (NOF) of Rs 25 lakh, registration has been granted to 7,555 NBFCs of which only 584 NBFCs have been permitted to accept public deposits and applications of 1,030 companies have been rejected. As many as 28,676 companies with NOF below Rs 25 lakh, as provided in the Act, have been given time upto January 8, 2000 toachieve the minimum NOF.

The RBI will soon come out with a comprehensive booklet aiming to inform depositors about the non-banking finance companies (NBFCs). "The RBI has launched a public information campaign so that depositors should satisfy themselves about the genuineness and soundness of NBFCs before they deposit their savings with them. Apart from this, the RBI will continue to closely monitor the effectiveness of the regulatory framework for the NBFCs," Jalan said.