19 FIs to face fund crisis

The latest decision to allow only 13 NBFIs to receive government's funds coupled with the insurance regulator's move to restrict the deposits of life insurance companies in NBFIs has posed a threat of funding scarcity for a good number of financial institutions, sector insiders said.
Terming the government's latest decision not rational, they said allowing only 13 NBFIs (non-banking financial institutions) to receive the government 's fund would create an uneven competition for the rest 19 NBFIs.
Presently, 32 NBFIs are doing operations in the country.
According to officials of Insurance Development & Regulatory Authority (IDRA), a draft proposal has been submitted to the ministry of finance (MoF) to include some new provisions in Asset Investment Rules of Life Insurance Companies.
One of the new provisions has debarred the life insurance companies to keep their deposits in the NBFIs.
Under such a situation, Bangladesh Leasing & Finance Companies Association (BLFCA) has urged the IDRA through a letter to allow life insurance companies to continue keep deposits in the NBFIs considering the gradual growth of the sector.
"It is our humble suggestions that you keep the status quo situation and let the insurance companies decide on the mode and manner in which the deposits are to be placed in selected institutions," said the BLFCA's letter sent to IDRA on September 6 last.
The BLCFA also made suggestion to allow FDR in the NBFIs with credit rating of 'Single-A' or above, rated by renowned rating agencies.
"You may set your own criteria for insurance companies based on relative strengths on the basis of equity, capital adequacy ratio etc," the letter of BLFCA said.
Selim R. F. Hussain, the managing director of IDLC Finance, said at first we welcome the government's initiative in allowing 13 NBFIs to receive the government's fund.
"There are many NBFIs having capital adequacy. Why will only 13 NBFIs be allowed to avail the government's facility? To know the logic behind the decision we will sit with the MoF soon," said Mr. Selim.
In case of IDRA's proposal, Selim said NBFIs have not failed to comply with regulatory requirements, whereas banks sometimes have failed to comply with the requirements.
"If the NBFIs are allowed to receive funds of government and autonomous bodies, then why the insurance companies will not be allowed to keep deposits in the NBFIs," Selim added.
Faruq Ahamd Siddiqi, former chairman of the securities regulator, said the Bangladesh Bank (BB), IDRA and the MoF should consult the issue to reach a unanimous decision regarding investment proposal set for life insurance companies.
Recently, the Banking and Financial Institution Division of the MoF issued a notification allowing at least 13 NBFIs to receive a part of the development and non-development funds of the government and autonomous bodies as deposits.
Asked, BLFCA chairman Asad Khan said the NBFI sector will face fund crisis if the IDRA's proposal comes into effect barring life insurance companies' deposits in the NBFIs.
"We cannot say that the government is not looking at the NBFI sector. But the sector is not being focused properly," said Asad Khan, also the managing director of Prime Finance.
While talking to the FE, a senior official of the IDRA said on the condition of anonymity that fresh proposal regarding investment of life insurance companies has been included in the draft considering the issue of security.
"The NBFIs have no SLR (Statutory Liquidity Ratio) like commercial banks. It may be the reason to bring change in the rules of asset investment for life insurance companies," said the IDRA member.
He, however, said the investment proposal of life insurance companies still remains in the form of proposal.
"The IDRA will sit with the MoF to discuss the proposals soon," the official said.
In its letter, the BLFCA said in many cases the supervision and regulatory requirements for FIs are more strict than the banks.
"According to Financial Stability Report of Bangladesh Bank, the NBFIs sector is adequately capitalized and their growth rate is satisfactory," the BLFCA said.
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