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Updated: September 10, 2009 20:28 IST

We need an Indian model of financial services

D. Murali
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A file photo of Mr. T.T.Srinivasaraghavan. Photo: S.R.Raghunathan
A file photo of Mr. T.T.Srinivasaraghavan. Photo: S.R.Raghunathan

It is a crisp morning shortly after dawn, and the trees in Nageswara Rao Park seem to be swaying in tune with the Sunday concert that is on. Shravan is singing Tyagaraja’s ‘Sarasa sama dana’ to the accompaniment of Shyam on the violin and Kaushik on the mridhangam. And, standing in the fringes of the gathered music aficionados is T. T. Srinivasaraghavan, MD, Sundaram Finance Ltd., and Chairman, FIDC (Finance Industry Development Council).

An unusual place, I agree, to ambush TTS, but only days earlier the FIDC, a self-regulatory organisation for asset financing NBFCs (non-banking financial companies), had come out with a comprehensive document on the repossession of assets.

“It is sort of a compendium of dos and don’ts, laws on the subject and the Supreme Court ruling on the subject,” explains Srinivasaraghavan, when I bring up the topic for discussion. “It is a complete discourse on what is a very vexatious subject,” he adds.

“Vexatious?” I wonder. He nods, the way rasikas do. “In the past, we have heard several criticisms relating to the repossession process followed by NBFCs. The launch of this handbook is a key milestone for the NBFC sector.”

TTS believes that the FIDC handbook will serve as an authoritative reference and guideline on this subject, and also remove the misconceptions surrounding the legitimate activity of repossession of assets, even while bringing a certain level of transparency and uniformity and discipline in practices across the NBFC sector.

“Having said all of these, it is important for all asset financing NBFCs to follow the guidelines for repossession, both in letter and in spirit. Failure to do so could result in the NBFC sector losing this important deterrent to default,” he continues.

By now, the trio of young musicians is on to Neelakanta Sivan’s ‘Ananda natanam aduvar’ in Poorvi Kalyani raga, before rendering ‘Ongi ulagalanda’ a Thiruppavai in Arabhi, and wrapping up with a Thillana in Sindhu Bhairavi by Srimushnam V. Raja Rao. In parallel, though, my subdued chat with TTS goes on…

Excerpts from the interview.

Are the DTC proposals threatening to adversely impact the NBFCs?

At a broader level, the implications of the Direct Taxes Code (DTC) Bill are evolving everyday because the more you read the code, the more new things pop up.

But specifically on the issue of ‘tax on gross assets’ and its implications for the NBFC sector, clearly our view is that if the banks are going to be taxed at 0.25 per cent, then the same rule has to be applied to all other institutions in similar business of lending, including the NBFCs and HFCs (housing finance companies).

More importantly, the right approach would be to levy the tax on net assets, for banks and financial services companies.

It is our earnest plea to the Finance Minister to take a re-look at this because with this kind of a tax, no one other than banks can exist.

Your views on financial inclusion as a need, and also on the appropriateness of the approach we have been adopting to achieve the same.

It has become fashionable in this country to believe that anything to do with financial services has to be made in America. We fail to realise that what we need here in the financial services sector is an Indian model, given our diversity and the fact that our challenges are very different from anywhere else in the world. With the turn of events over the last 12-18 months, I am hoping that we will finally realise that we must seek Indian solutions to our challenges.

Banks should look at their relationship with NBFCs as a wholesaler-retailer relationship and not as competitors. While the NBFCs are only a small number, if this business model of a wholesaler-retailer evolves, it will certainly help in expanding the reach of credit delivery to the far corners of the country, especially to the under-served markets.

The success of the last mile delivery depends on the various players working as a continuum.

Is microfinance being seen as an alternative to the NBFC model? Are there synergies, instead, that can be explored?

When something becomes the flavour of the times, everyone jumps on and wants a piece of the action. Later, depending on whether it succeeds or fails, it charts a very different course. I have nothing against micro-financing. There is enough anecdotal evidence that it has served certain very vulnerable sections of society. It is certainly something we should support but the problem is in over-hyping it, which is what we typically tend to do.

While the MFIs (microfinance institutions) definitely have a very important and useful role to play in serving rural India, they should not become a privileged class that excludes everyone else.

We should find the right balance and recognise that there are several channels in providing last mile credit delivery -- there are the nationalised banks, RRBs (regional rural banks), MFIs and the NBFCs. It is important to involve all those who understand the dynamics of rural India, especially the un-served parts of the country.

Despite the blame that financial innovation has been heaped with, post economic meltdown, do you see scope for innovative products in the field of finance, especially at the grass-root level? And also, what is your view on the potential of technology to reduce costs of finance delivery?

From relying only on fund-based activities, most NBFCs today have moved on to expand their presence in the financial services space and have become distributors of several financial products in insurance, mutual fund, home finance etc. NBFC as a channel to deliver these products to the un-served sections of the society is very much on and is part of our agenda. Going forward, I do believe that NBFCs will continue to provide this varied range of financial products to the rural market and will actually expand the market for these products.

Technology will certainly reduce transaction costs, though the initial costs of creating the technology platform and infrastructure can be significant.

Keywords: Sundaram FinanceNBFCFIDCDTC

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