10.2 Monetary and Financial Statistics

Monetary Statistics

Current Status

10.2.2 Following the recommendations of the Second Working Group on Money Supply (SWG) in 1977, RBI has been publishing four monetary aggregates – M1, M2, M3 and M4 - besides the reserve money. From among the aggregates, M1 and M3 are extensively used both for policy purposes and in academic exercises. While M1 includes currency with the public, non-interest bearing deposits with the banking sector including that of RBI, M3 captures the complete balance sheet of the banking sector. M2 and M4 that include post office savings banks deposits are not very widely used. The reserve money and M3 aggregates are presented both for the components (liabilities) and sources (assets). The weekly balance sheet data of RBI are used for the compilation of reserve money. The balance sheet data for the entire banking sector which include apart from RBI, commercial and co-operative banks are used for compilation of M3. The reserve money is compiled with a weekly periodicity, while M3 is computed fortnightly. The monetary data for the current period are disseminated by RBI in its Weekly Statistical Supplement (WSS) to the Bulletin. Monetary data for longer periods are disseminated by RBI through the Monthly Bulletin, Annual Report, and Handbook of Statistics on Indian Economy.
10.2.3 The RBI has started publishing a set of new monetary aggregates following the recommendations of the Working Group on Money Supply: Analytics and Methodology of Compilation (Chairman: Dr. Y.V. Reddy) which submitted its report in June 1998. The Working Group recommended compilation of four monetary aggregates on the basis of the balance sheet of the banking sector in conformity with the norms of progressive liquidity: M0 (monetary base), M1 (narrow money), M2 and M3 (broad money) (see Box 10.1). In addition to the monetary aggregates, the Working Group had recommended compilation of three liquidity aggregates namely, L1, L2 and L3, which include select items of financial liabilities of non-depository financial corporations such as development financial institutions and non-banking financial companies accepting deposits from the public, apart from post office savings banks.
Weekly Compilation
- M0= Currency in Circulation + Bankers’ Deposits with RBI + ‘Other’ Deposits with RBI*
Fortnightly
- M1 = Currency with the Public + Demand Deposits with the Banking System + ‘Other’ Deposits with RBI*
  =Currency with the Public + Current Deposits with the Banking System + Demand Liabilities Portion of Savings Deposits with the Banking System + ‘Other’ Deposits with RBI*
- M2=M1+ Time Liabilities Portion of Savings Deposits with the Banking System + Certificates of Deposit issued by Banks + Term Deposits of residents with a contractual maturity of up to and including one year with the Banking System
  =Currency with the Public + Current Deposits with the Banking System + Savings Deposits with the Banking System + Certificates of Deposits issued by Banks + Term Deposits of residents with a contractual maturity up to and including one year with the Banking System + ‘Other’ Deposits with RBI*.
- M3=M2+ Term Deposits of residents with a contractual maturity of over one year with the Banking System + Call/Term borrowings from ‘Non-depository’ financial corporations by the Banking System.
- Note: * ‘Other’ deposits with RBI comprise mainly: (i) deposits of quasi-government and other financial institutions including primary dealers, (ii) balances in the accounts of foreign Central banks and Governments, (iii) accounts of international agencies such as the International Monetary Fund, etc.
10.2.4 While the Working Group did not recommend any change in the definition of reserve money and M1, it proposed a new intermediate monetary aggregate to be referred to as NM2 comprising currency and residents' short-term bank deposits with contractual maturity up to and including one year, which would stand in between narrow money (which includes only the non-interest-bearing monetary liabilities of the banking sector) and broad money (an all-encompassing measure that includes long-term time deposits). The new broad money aggregate (referred to as NM3 for the purpose of clarity) in the Monetary Survey would comprise in addition to NM2, long-term deposits of residents as well as call/term borrowings from non-bank sources, which have emerged as an important source of resource mobilisation for banks. The critical difference between M3 and NM3 is the treatment of non-resident repatriable fixed foreign currency liabilities of the banking system in the money supply compilation.
10.2.5 There are two basic changes in the new monetary aggregates. Since the post office bank is not a part of the banking sector, postal deposits are no longer treated as part of money supply, as was the case in the extant M2 and M4. Second, the residency criterion was adopted to a limited extent for compilation of monetary aggregates.
10.2.6 The Working Group made a recommendation in favour of compilation of monetary aggregates on residency basis. Residency essentially relates to the country in which the holder has a centre of economic interest. Holdings of currency and deposits by the non-residents in the rest of the world sector, would be determined by their portfolio choice. However, these transactions form part of balance of payments. Such holdings of currency and deposits are not strictly related to the domestic demand for monetary assets. It is therefore argued that these transactions should be regarded as external liabilities to be netted from foreign currency assets of the banking system. However, in the context of developing countries such as India, which have a large number of expatriate workers who remit their savings in the form of deposits, it could be argued that these non-residents have a centre of economic interest in their country of origin. Although in a macro-economic accounting framework all non-resident deposits need to be separated from domestic deposits and treated as capital flows, the underlying economic reality may point otherwise. In the Indian context, it may not be appropriate to exclude all categories of non-resident deposits from domestic monetary aggregates as non-resident rupee deposits are essentially integrated into the domestic financial system. The new monetary aggregates, therefore, exclude only non-resident repatriable foreign currency fixed deposits from deposit liabilities and treat those as external liabilities. Accordingly, from among the various categories of non-resident deposits at present, only Foreign Currency Non-Resident Accounts (Banks) [FCNR(B)] deposits are classified as external liabilities and excluded from the domestic money stock. Since the bulk of the FCNR(B) deposits are held abroad by commercial banks, the monetary impact of changes in such deposits is captured through changes in net foreign exchange assets of the commercial banks.

10.2.7 The data on new monetary aggregates were published in the Report of the Working Group from April 1993 onwards, as Foreign Currency Non-Resident Account (Banks) was introduced in 1993. The backward construction of the series on the component side is possible but the data on sources are still unsteady. Comparative data on Monetary Aggregates as per the present and the new series for the period 1997 to 1999 are presented in Table 10.1.

March 31	Present			New
March 31	Reserve Money (RM)	M1	M3*	M0=RM	NM1=M1	NM2@	NM3
1997	1,99,985	2,40,615	7,01,848	1,99,985	2,40,615	4,51,564	6,70,043
1998	2,26,402	2,67,844	8,28,257	2,26,402	2,67,844	4,77,993	7,89,166
1999	2,59,371	3,08,315	9,80,382	2,59,371	3,09,328#	5,50,807	9,25,530

Notes: Data are provisional.
* Includes banks' pension and provident funds.
@ NM2 data have been estimated for end-March 1998 and 1999 by working out the share of short-term time deposits in total residents’ time deposits for select nationalised banks, which stood at 45.0 per cent as at end March 1999. In case of March 1997, the estimate of the Working Group report has been retained.
# The difference is due to different co-operative estimation methods as recommended by the Working Group.
10.2.8 Monetary data are published in the Weekly Statistical Supplement of RBI and in the National Summary Data Page (Special Data Dissemination System) of the International Monetary Fund on a weekly basis. The reserve money data is released with a weekly periodicity while data on money supply is released fortnightly. Monetary data is published in the RBI Bulletin on a monthly basis, and in the Annual Report and Handbook of Statistics on the Indian Economy on an annual basis. The time series data on new monetary and liquidity aggregates since April 1993 were published in a special article in the November 2000 issue of the RBI Bulletin and updates on the new monetary aggregates are being published in the subsequent issues of RBI Bulletin. As a part of the recommendations of the Working Group, the earlier money supply series is at present being continued alongside the new money supply series. The Working Group had proposed that both the existing and the new monetary aggregates may initially be published for at least a year in the relevant RBI publications in order to facilitate an understanding of the elements underlying the shift to the proposed aggregates.
10.2.9 In view of the difficulties experienced in obtaining data from major categories of co-operative banks and the time lags in their reporting, the Working Group recommended that data relating to items of liabilities and assets that have a direct bearing on the monetary survey could be collected through a representative sample of major co-operative banks at monthly intervals, followed by a population survey. Critical urban co-operative banks (with deposits of Rs.25 crore and above) and central co-operative banks (with deposits of Rs.50 crore and above) were instructed to file advance returns on selected assets and liabilities as proposed by the Working Group. Presently, because of data problems posed by co-operative banks, close to 7 per cent of the data on monetary aggregates are estimated/ extrapolated. Scheduled commercial banks also, under the RBI Act 1934, are allowed to send provisional returns followed by final returns. Consequently, the extent of revision of provisional and final data of the new monetary aggregates is often significant.

Interest Rates
- 10.2.10 The RBI announces changes in the Bank Rate, the Repurchase Agreement (repo) rate, the interest rate on saving deposits and interest rates on export credit from time to time through the issue of circulars. The data on short-term interest rates relating to the money market are published by RBI on a daily basis. No estimation/forecast of interest rates is undertaken. The data on deposit rates (major banks) and PLR (5 major banks) are published by RBI in the WSS and the Monthly Bulletin. The data on interest rates (other than those decided by RBI) are collected from banks through the Special Fortnightly Returns. Changes effected from time to time in their lending and deposit rates are disseminated by the respective banks to the public through advertisements in newspapers, etc.
Conclusions and Recommendations
- 10.2.11 The data released by RBI on monetary aggregates compare favourably with international standards. At a disaggregated level, the data in respect of commercial banks are reliable, adequate and timely. In respect of co-operative banks, there is a need for improving the quality and timeliness in availability of data. The Commission recommends that:
  - Reserve Bank of India (RBI) should consider publication of an average holding of cash reserves by commercial banks during the reference period. Data on actual cash reserves and liquidity amounts, excess cash reserves and liquidity investments, corresponding net demand and time liabilities (DTL) amounts, and the ratios of required, actual and excess cash reserve ratio (CRR) and statutory liquidity ratio (SLR) should be published. This is because a major component of the reserve money is the bankers’ deposits with RBI, essentially arising out of CRR prescribed for the banks. The banks are, however, allowed the flexibility to maintain CRR on an average basis during a fortnight with the restriction that the CRR on a particular day could be maintained at as low as 50 per cent of the required level for the first seven days of the reporting fortnight and 65 per cent for the rest of the fortnight. The reserve money data at a particular point of time, therefore, may not reflect the sharp changes in the component of bankers’ deposits with RBI.
  - Since there are differing perceptions on the concepts of monetary aggregates, RBI should publish a time series on components of money at a disaggregated level so as to enable analysts to construct their own series.
  - The data on the new monetary aggregates are available on a monthly basis since April 1993. RBI should consider extending this series backwards with a view to providing a longer time series, which would facilitate empirical studies.

Banking Statistics
- 10.2.12 The data relating to major items of financial liabilities and assets form the core of banking statistics. Historically, RBI has been collecting detailed information from the commercial banks covering various aspects of their deposits, credit and investments. This includes data on priority sector advances, credit to exporters, asset quality, etc. The banking system includes: A. Reserve Bank of India, B. Commercial banks (including regional rural banks), and C. Co-operative banks.
- Current Status
  - Reserve Bank of India
    - 10.2.13 The reserve money aggregates are compiled exclusively on the basis of the weekly balance sheet of RBI. RBI compiles data on its assets and liabilities of Issue and Banking Departments and publishes the same in Weekly Statistical Supplement (WSS) as also in the Monthly RBI Bulletin; the audited balance sheet is published in its Annual Report. Data relating to RBI balance sheet and hence, the reserve money aggregate are adequate.
  - Commercial Banks
    - 10.2.14 The major items of liabilities and assets pertaining to commercial banks are used in compilation of all monetary aggregates except reserve money aggregates. As per Section 42(2) of the RBI Act, commercial banks are statutorily required to provide major items of the liabilities and the assets on a fortnightly basis, which form the basis for compilation of monetary aggregates. Since the format of the Section 42(2) is governed by statutory provision, the coverage of Section 42(2) return was expanded by providing an additional annexe to the main format to capture, on the assets side, banks’ investment in capital market instruments such as shares and debentures of corporates, commercial paper and foreign currency assets while on the liabilities side, items such as paid-up capital, reserves, certificates of deposits and maturity structure of time deposits were included. Thus, high frequency data on most items of the balance sheet are now available on a fortnightly basis with a lag of a fortnight. Apart from forming a part of the monetary aggregates, the banking aggregates as given in the Section 42(2) returns are disseminated as such, in RBI publications of WSS, Monthly Bulletin, Annual Report and Handbook of Statistics on Indian Economy. The data on cheque clearances, for centres managed by the RBI and those managed by agencies other than RBI, centre-wise – monthly and annual, are published in the Monthly Bulletin and the Handbook of Statistics on Indian Economy. The commercial banks also publish data on their balance sheet and profit and loss account on an annual basis. The financial ratios based on balance sheet data are analysed in detail in the Report on Trend and Progress of Banking in India.
    - 10.2.15 In addition, disaggregated data on various aspects of deposits, credit and investments are published as a part of the Basic Statistical Returns (BSR) system. The BSR is a unique system with data collected from individual bank branches on a census or sample survey basis depending on the type of returns, which are non-statutory in nature. The data collected through the BSR system are treated as final. Presently, the data is collected through electronic media (floppy) from the public sector banks (PSB). An annual publication, Banking Statistics, disseminates comprehensive data on deposits and credit, aggregated at various levels such as region, state and district as also by population group, bank-group and occupation. Another publication, Banking Statistics - Quarterly Handout, provides state and population group-wise and district-wise distribution of deposits and credit of different bank groups. The time lag for the annual publication is one year and for the quarterly publication, one quarter.
    - 10.2.16 The results of surveys on: (a) Composition of Ownership of Deposits, (b) Investments of Scheduled Commercial Banks by Type of Instruments, and (c) Debits to Deposits are published in the form of an article in the monthly RBI Bulletin with a time lag of about one year.
    - 10.2.17 Recently, under the International Banking Statistics (IBS), a system of Locational Banking Statistics (LBS) and Consolidated Banking Statistics (CBS) has been introduced for the commercial banks to collect data on international assets and international liabilities classified by country, sector, currency, maturity, branches or offices of banks, Indian and foreign, operating in India, and offices of Indian banks operating abroad. The data under CBS include international assets position in all currencies and comprises all balance sheet items consolidated worldwide, including the business of all the offices of reporting banks at home and abroad. An important feature of the CBS is the provision of data, on the basis of both country of immediate risk and country of ultimate risk.
    - 10.2.18 The LBS statistics are proposed to be collected from selected bank branches. The first survey, launched on an experimental basis with 31 December 1999 as reference date, produced encouraging results. The CBS survey will be launched after the quality of reporting under LBS improves.
    - 10.2.19 The publication Statistical Tables relating to Banks in India contains bank-wise annual balance sheet data on assets, liabilities, earnings and expenses of commercial banks, besides other information such as contingent liabilities, NPAs, etc. This publication also releases data on liabilities and assets of urban co-operative banks, cheque clearances, etc.
    - Deficiencies
      - 10.2.20 Data on residual maturity of term deposits with the commercial banks are not available. The centre-wise cheque clearances published by the RBI combines inter-bank cheque clearances with customer clearances, thus reducing the analytical utility of the data. The absence of uniform industrial classification in the case of BSR and National Industrial Classification (NIC), 1998 also poses problem of comparability. LBS and CBS data are yet to be disseminated to the public.
    - Conclusions and Recommendations
      - 10.2.21 The statistics on the finances of commercial banks released by RBI are reliable and numerous. There are, however, certain gaps in the data now compiled. The Commission recommends that:
        Data on residual maturity of term deposits with the commercial banks should be collected and published by RBI. This will help in understanding the maturity profile of liabilities of commercial banks, its transition over time and the causal factors determining such changes.
        
        The data on inter-bank cheque clearances should be given separately by the RBI.
        
        In view of the need for consistency in the National Statistical System, RBI should maintain uniformity in the classification of occupation in borrowal accounts in Basic Statistical Returns (BSR) in conformity with National Industrial Classification (NIC) 1998 of CSO.
        
        The coverage of data under the BSR system presently collected on electronic media (floppy) from the public sector banks (PSBs) should be extended. The PSBs should be encouraged to report data to RBI on-line, which would further reduce the time lag in processing and disseminating statistics based on the BSR system. The estimates based on sample surveys under the BSR, should include information on their statistical credibility such as standard errors.
        
        Locational Banking Statistics (LBS) and Consolidated Banking Statistics (CBS) on international claims of banks should be compiled and published by RBI as early as possible.
    - Regional Rural Banks
      - 10.2.22 The Regional Rural Banks (RRBs) were established in 1975 to supplement the efforts of co-operative and commercial banks in different States with equity participation from commercial banks, Central Government and State Governments. RRBs have been sponsored by public sector banks and are akin to commercial banks in their method of operations and set up, but the area of activity and loan operations are restricted to specified areas and target-groups.
      - Current Status
        10.2.23 As the RRBs are scheduled commercial banks, they report their major items of liabilities and assets on a fortnightly basis as a part of the Section 42(2) return, which forms the base for compilation of monetary aggregates. From the standpoint of money supply compilation, therefore, the relevant data pertaining to RRBs are adequate and timely.
        
        10.2.24 While the dissemination of high frequency statistics on RRBs by RBI is aggregated with that of scheduled commercial banks, separate details are made available by RBI in its annual publications namely, Report on Trend and Progress of Banking in India, Statistical Tables relating to Banks in India and Handbook of Statistics on Indian Economy. For the BSR system, all the RRB offices send their Returns to their Head Offices, which in turn forward these to RBI. In addition, RRBs submit audited balance sheets on an annual basis and quarterly progress reports to NABARD.
      - Deficiencies
        10.2.25 Data on Regional Rural Banks (RRBs) are adequate and reliable but are available with a considerable time lag, as the submission of balance sheets by the RRBs to NABARD often gets delayed. The detailed data are published by NABARD with a lag of six months to two years.
      - Conclusions and Recommendations
        10.2.26 Data on Regional Rural Banks (RRBs) are reliable and adequate from the standpoint of money supply compilation. However, for the purpose of Basic Statistical Returns (BSR), data are made available with a considerable time lag. Therefore, the Commission recommends that:
        The delay in collection of data from the Regional Rural Banks (RRBs) should be eliminated by concerted efforts made by RBI, NABARD and RRBs.
  - Co-operative Banks
    - 10.2.27 Co-operative banking is an integral part of the banking system in India. The various segments of co-operative banks are Primary Co-operative Banks, State Co-operative Banks, District Central Co-operative Banks, Primary Agricultural Credit Societies, State Co-operative Agriculture and Rural Development Banks and Primary Co-operative Agriculture and Rural Development Banks. Co-operative banks include scheduled and non-scheduled co-operative banks.
    - Current Status
      - 10.2.28 Data on scheduled co-operative banks are available in the fortnightly returns while data in respect of non-scheduled co-operative banks are available in the monthly returns filed by them with RBI. These data are used for the compilation of monetary aggregates. As discussed earlier in the sub-section pertaining to monetary aggregates, the data on the co-operative sector are being collected from large-sized banks. However, due to delay in submission of data by the non-scheduled segment of the co-operative banks, data are extrapolated in compiling monetary aggregates.
      - 10.2.29 Detailed data relating to the operation of the co-operative banking sector are compiled primarily by NABARD and RBI. Primary (Urban) Co-operative Banks send their returns to RBI while other co-operative banks submit their returns to NABARD. Firm data for the financial year are made available with a time lag of 18- 20 months.
      - 10.2.30 The NABARD releases detailed information on co-operative banks through its publications. RBI publishes assets and liabilities, and financial performance of scheduled primary, State and Central co-operative banks in the Report on Trend and Progress of Banking in India.
    - Deficiencies
      - 10.2.31 Due to a large number of co-operative banks and their geographical distribution, detailed data for the co-operative sector are available with a lag of 18 to 20 months on account of delay in the flow of information to NABARD from the non-scheduled segment based in the rural sector which accounts for a substantial share of deposits of co-operative banks. Even the data of primary urban co-operative banks (non-scheduled) are available to RBI after a time lag of more than a year. Lack of proper differentiation between higher tier as well as large sized co-operatives and smaller ones in devising systems also act as an obstacle in the consolidation of data. Besides, the balance sheets of the co-operative banks are also not standardised.
    - Conclusions and Recommendations
      - 10.2.32 Data released by NABARD on co-operative banks are adequate and reliable. However, there is a considerable delay in the receipt of data pertaining to co-operatives. Therefore, the Commission recommends that:
        The NABARD should consider different methods of collecting data to reduce the time lag. The basic strategy should be to differentiate among higher tiers as well as to differentiate larger co-operatives from the large number of smaller ones. Data from the former should be prompt and regular while for the latter a suitable system should be designed. The differentiation between the scheduled and non-scheduled co-operatives can also be useful for quick data collection and dissemination.
        
        The NABARD should adopt a suitable sample survey to collect data from primary rural co-operative societies, (which are large in number) as it becomes difficult to collect data from all such co-operatives at frequent intervals.
        
        The balance sheet of the co-operative banks should be standardised to a form, similar to that of commercial banks by RBI and NABARD.
Financial Institutions
- 10.2.33 The structure of financial institutions (FIs) in India is widely diversified and includes National and State level development financial institutions, insurance corporations and investment institutions. For purposes of classification, the financial institutions can be classified into three broad heads: (a) All-India Financial Institutions, (b) State-level Institutions (SFCs and SIDCs), and (c) Other Institutions (ECGC and DICGC). All-India Financial Institutions can be further reclassified under four broad heads – All-India Development Banks (IDBI, ICICI, SIDBI, IIBI and IFCI); Specialised-Financial Institutions (EXIM Bank, RCTC, ICICI Venture, TFCI and IDFC); Investment Institutions (UTI, LIC and GIC and its subsidiaries); and Refinance Institutions (NABARD and NHB). In the case of investment institutions, UTI, being a mutual fund, is discussed under the section on capital markets while for the LIC and the GIC and its subsidiaries, the discussion is presented in a separate section on the Insurance sector.
- Current Status
  - 10.2.34 Select items of data from financial institutions are required with a monthly frequency for compilation of liquidity aggregates. For example, the second tier liquidity aggregate (L2), inter alia, includes Term Deposits with Term-lending Institutions and Refinancing Institutions (FIs), Term Borrowing by FIs and Certificates of Deposit issued by FIs. In addition, instrument-wise details of aggregate assets and liabilities of financial institutions are required with a quarterly frequency for compilation of comprehensive Financial Sector survey.
  - 10.2.35 The primary agency involved in data collection as well as data dissemination in respect of financial institutions is IDBI. Data are furnished by the respective FIs/investment institutions/SFCs/SIDCs to IDBI. IDBI publishes data in its Report on Development Banking in India. Besides, the respective FIs publish detailed information on their performance every year in their annual accounts. RBI publishes limited data on the FIs in the Annual Report and Report on Trend and Progress of Banking in India, and detailed data in the Handbook of Statistics on Indian Economy. However, monthly/quarterly data are not disseminated. It is important to recognise here that the financial institutions differ substantially in the very nature of their activities. This is one of the reasons why data collected in respect of FIs are not uniform.
- Deficiencies
  - 10.2.36 There is a delay in the receipt of data by IDBI from financial institutions. In respect of term-lending or refinance institutions, data though complete, are unaudited for the monthly and quarterly series (audited data are available only in regard to half-yearly or annual data). A primary problem that arises with consolidating the data regarding this sector is that different institutions have different financial and accounting years.
  - 10.2.37 The financial assets of the FIs form a very significant proportion of the total financial assets in the economy. Therefore, it is essential to put in place a comprehensive statistical information system, which can yield reliable, timely and adequate data regularly. This mechanism is absent currently.
- Conclusions and Recommendations
  - 10.2.38 In case of financial institutions, adequate and reliable data released by IDBI, are available with a considerable time lag. The financial institutions in the medium to long term may metamorphose into commercial banks or NBFCs considering the universalisation of banking operations in the liberalised environment. Therefore, the Commission recommends that:
    - Term-lending (IDBI, SIDBI, IFCI, etc.) and refinance institutions (NABARD, NHB) should furnish data promptly on a monthly/quarterly basis. To facilitate prompt release of data, a revision of the existing returns should be undertaken and an increased frequency in reporting stipulated by RBI and IDBI concertedly on an urgent basis.
    - The accounting years should be synchronised for all financial institutions.
    - The RBI, in consultation with IDBI, should introduce necessary returns from Financial Institutions (FIs) for compilation of liquidity and other financial aggregates.
Non-Banking Financial Companies (NBFCs)
- 10.2.39 A characteristic feature of the non-banking financial companies (NBFCs) is their wide reach in deposit mobilisation. The main advantages of these companies lie in their lower transaction costs, quick decision-making ability, customer orientation and prompt provision of services.
- 10.2.40 NBFCs are classified into the following categories based on their principal business: Equipment Leasing Company (ELC), Hire Purchase Financing Company (HPFC), Loan Company (LC), Investment Company (IC), Mutual Benefit Financial Company (Nidhi), Mutual Benefit Company (Un-notified Nidhi) Miscellaneous Non-Banking Company (Chit Fund Company), Residuary Non-Banking Company (RNBC) and Housing Finance Company (HFC).
- 10.2.41 In the present regulatory framework, the entire gamut of regulation and supervision of the activities of NBFCs has been redefined, in terms of both the thrust as well as the focus. Consequently, NBFCs are classified into three categories for the purposes of regulation namely, (a) those accepting public deposits; (b) those which do not accept public deposits, and (c) core investment companies which hold at least 90 per cent of their assets as investments in the securities of their group, holding or subsidiary companies and are not trading in such securities. The companies which accept public deposits are required to comply with all the prudential norms of income recognition, asset classification, accounting standards, provisioning for bad and doubtful debts, capital adequacy and credit or investment concentration norms, etc. The NBFCs not accepting public deposits are regulated in a limited manner. Prudential norms like income recognition, asset classification, uniform accounting year and accounting standards that disclose the status of their financial health have been made applicable to them. The core investment companies have been exempted from all the provisions of directions. However, these companies are subject to the regulatory purview of RBI Act including provisions of compulsory registration and creation of reserve funds.
- Current Status
  - 10.2.42 Select items of data from financial institutions are required on a monthly frequency for compilation of liquidity aggregates. For example, the third tier liquidity aggregate (L3), inter alia, includes Public Deposits of NBFCs. In addition, instrument-wise details of aggregate assets and liabilities of NBFCs are required with a quarterly frequency for compilation of a comprehensive Financial Sector survey.
  - 10.2.43 Studies on Financial and Investment Companies published annually by the RBI in its Monthly Bulletin form one source of data. This source provides statistics on the liabilities and assets, income, expenditure and appropriation accounts based on a sample of about 700 companies belonging to different categories of NBFCs stated above. The data relate to annual accounts and are available with a lag of one to one-half years. These data are used to derived the estimates of savings and investment of NBFCs and these are worked out for the entire segment of the NBFC sector, through the blowing-up procedure, based on a sample coverage in the population of companies, in terms of paid-up capital.
  - 10.2.44 Another source of data is the survey on ‘Growth of deposits with non-banking companies’ conducted by the RBI. The survey results are also published annually. The survey collects data on public deposits accepted by them, exempted deposits, net owned funds and other borrowings, from the above category of NBFCs. The publication of the survey has since been discontinued and the figures relating to deposits of NBFCs are being compiled on the basis of returns submitted by them. With the shift of regulatory focus to deposit taking companies, the terms ‘public deposits’ has been redefined in January 1998, hence from 1998 onwards, the data, as much as, it relates to public deposits is not comparable to that of earlier years.
  - 10.2.45 According to the Department of Company Affairs (DCA), there were 65,382 non-banking financial companies as on 31 March 1999. The Reserve Bank of India made the registration of all non-banking financial companies with RBI compulsory with effect from January 1997. RBI had set out certain norms for registration, such as net owned funds (NOF) of Rs.25 lakh as on 9 January, 1997, which had been revised upwards to Rs. 2 crore effective from 21 April, 1999 for new applicants. The companies, which comply with the norms prescribed in RBI Act 1934, are registered with the RBI with the authorisation to accept public deposits or to function as NBFCs without accepting deposits. The companies, which do not comply with the prescription within a stipulated period, including the extended period as prescribed in the Act and permitted by the Bank, are denied registration and have to close down their business activity. This category of companies is referred to as “rejected” companies.
  - 10.2.46 Further, many companies have been exempted from registration with the RBI such as those engaged in micro-financing activity while not accepting public deposits, and licensed under Section 25 of the Companies Act; mutual benefit companies, nidhi companies and Chit Fund companies. Thus, these companies can conduct the specific financial activity without a Certificate of Registration (CoR) of the RBI. Insurance companies and housing finance companies have been exempted from the requirements of registration, liquid asset maintenance and creation of reserves under RBI Act as they are regulated by other regulators.
  - 10.2.47 The NBFCs can, therefore, be grouped into three categories namely, (a) companies registered with RBI, (b) companies applied for CoR but rejected, and (c) companies not registered with RBI. Although the RBI will have a list of NBFCs in respect of the first two categories, only companies accepting or holding public deposits submit an annual return in the form NBS-I/IA on different aspects of their operations such as growth of deposits, other borrowings, net owned funds, outstanding loans and advances, investments, other fixed assets, income and expenditure, and based on these details, some consolidated data are published in the Bank’s publication. These companies also submit half yearly and quarterly returns for supervisory purposes. Further, companies having public deposits of Rs.20 crore and above also submit specific returns. The data collected through these returns are more important from the regulator’s point of view being required for the purpose of regulating these companies. The rejected category of companies, which are holding public deposits, are also required to submit annual statements on assets and liabilities in Form NBS-4. Thus, for supervisory purposes, a comprehensive system of off-site reporting by NBFCs has been introduced since a little over the last two years. Under this system, all the deposit holding NBFCs are required to file returns at various intervals with the RBI. The following returns are prescribed regardless of whether they are registered or not: (a) Annual return on deposits; (b) Half-yearly statement on prudential norms; and (c) Quarterly statement on liquid assets maintained.
  - 10.2.48 These returns aim at capturing information on the quantum and profile of public deposits solicited by each company and verifying the level of compliance with regulatory norms prescribed in this regard, the level of achievement of prudential standards pertaining to capital adequacy, provisioning against non-performing assets, the quantum of liquid assets maintained by the NBFCs in relation to their deposit liabilities, etc.
- Deficiencies
  - 10.2.49 Although all NBFCs incorporated with DCA are supposed to be registered with RBI, some of these companies, might not have yet registered themselves with RBI. The details collected through NBS-1 and 1A return do not cover all liabilities and assets and as such the format needs to be suitably modified. The response from the rejected category of companies to submit the NBS-4 return is very low, as only about 25 per cent of these companies comply with, and this cannot be considered as a source of regular data. The database in respect of the exempted category of companies needs improvement.
  - 10.2.50 Data on NBFCs are available with a time lag and are also not adequate. While there has been some progress recently, quarterly data on outstanding public deposits are available only in respect of NBFCs accepting or holding public deposits. Data on assets and liabilities, excluding public deposits, though available on a quarterly basis since September 1998, are not disseminated to the public. Companies not accepting or holding deposits are not required to submit any returns therefore no structured data is available with respect to such companies.
- Conclusions and Recommendations
  - 10.2.51 In view of the existing deficiencies in the present system and considering the size and spread of NBFCs, the Commission recommends that:
    - The RBI should undertake the task of institutionalising the reporting system of all the NBFCs on an urgent basis. Accordingly, an appropriate reporting system should be devised for different categories of NBFCs. With regard to companies, which are, both registered and regulated by RBI namely, deposit-taking companies, periodical returns should be collected, consolidated and data disseminated on a systematic basis. The data coverage and timeliness for large companies should be on par with banking companies. There are NBFCs, which are registered with the RBI but are not regulated since they do not accept deposits. Information in respect of these companies should be consolidated and disseminated. There are several other companies which are registered under the Department of Company Affairs (DCA) and do not come under the jurisdiction of RBI and with respect to such companies, the information should be classified, consolidated and disseminated on the basis of their Annual Reports.
    - RBI has been collecting certain information through their surveys on growth of deposits with non-banking companies (now replaced with system of returns in case of deposit-accepting companies), which covers comprehensively different aspect of their operations. The RBI should analyse the complete set of data collected through these returns and publish comprehensive data on asset and liabilities, income and expenditure of all reporting companies, besides the analysis of public deposits as is being published at present. The details should also be presented by type of financial companies in collaboration with DCA.
    - A one-time census of NBFCs covering all companies incorporated with DCA should be conducted. The census should collect data on important activities, especially assets and liabilities and income and expenditure. A periodic sample survey should be conducted by the RBI for updating population estimates for NBFCs.
    - The RBI should continue the studies on financial and investment companies, till the system suggested above gets stabilised.

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