RBI Dy Governor calls for tighter regulations for large NBFCs
Published On: Friday, November 6, 2020 | By: Team KnowMyStock
Newly-appointed deputy governor M Rajeshwar Rao today (6th November 2020) said larger non-banking finance companies (NBFC) should be regulated as strictly as banks in order to preserve financial stability, at the same time letting the other NBFCs enjoy the light-touch regulation for the sector. The sector can expect to witness a graded regulatory framework for NBFCs "calibrated in relation to their contribution to systemic significance.” This may include having a relook on the regulation of microfinance institutions, and curtailing the regulatory arbitrage enjoyed by certain NBFCs that are neither too big to cause systemic instability, nor small enough to be ignored. "NBFCs with significant externalities and which contribute substantially to systemic risks must be identified and subjected to a higher degree of regulation. One can also argue that the design of a prudential regulatory framework for such NBFCs can be
comparable with banks so that beyond a point of criticality to systemic risks, such NBFC should have incentives either to convert into a commercial bank or scale down their network externalities within the financial system," Rao said at a summit on NBFCs organised by Assocham.
This arrangement, the deputy governor said, would make the financial sector “sound and resilient while allowing a majority of NBFCs to continue under the regulation-light structure.”
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