RBI offers banking-type standards for large NBFCs

MUMBAI: Large non-bank financial corporations (NBFC) are likely to be more intensely regulated and their lending to sensitive sectors such as capital markets and immovable capped if the RBI were to implement the proposals he put forward in a working document. The proposal comes at a time when an RBI panel recommended that major NBFC should be allowed to turn into banks.
The standards, which will be put on a par with banks for large NBFCs, include provisions for standard assets, CEO compensation guidelines, disclosure requirements and sales rules. doubtful debts. Mid-range and large NBFC will also need a centralized banking system. The document comes two months after RBI deputy governor Rajeshwar Rao said large NBFCS should be encouraged to convert to banks or downsize.
The discussion paper proposes to segment the industry into layers. There will be a base layer made up of non-systemically important NBFCs like peer-to-peer lending platforms. The second layer would be systemically important financial firms, including specialist lenders. The third layer would consist of NBFCs of considerable importance, the failure of which can have an impact on financial stability.
In addition to these companies, there would be a fourth layer. “It is possible that careful prudential judgment will push some NBFCs out of the top layer of systemically important NBFCs for higher regulation / supervision. These NBFCs will occupy the top of the top layer as a separate set, ”the report said.
The RBI had decided to review the regulation and supervision of NBFC following two major flaws – IL&FS and DHFL. “When the failure of an extremely large NBFC can precipitate systemic risk. The regulatory framework for NBFCs needs to be reoriented to keep pace with the changing realities of the financial sector.
The RBI has historically adopted a differentiated regulatory structure for NBFCs. “Lighter and differentiated regulation has provided operational flexibility to NBFCs and helped them develop sector and geographic expertise, extending the variety and ease of access to financial services. The existing regulatory arbitrage in favor of NBFCs has been well thought out and is conceptualized by design rather than default, ”said the RBI.

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