Summary:
Mumbai, Oct 22 (PTI) The Reserve Bank of India (RBI) will put in place a four-layered regulatory structure for non-banking financial companies to keep a stricter vigil on the shadow banking sector and minimise risks for the overall financial system.
The detailed set of norms, which will come into force from October 2022, provides for a Scale Based Regulation (SBR) framework that takes into consideration capital requirements, governance standards, prudential regulation and other aspects of the Non-Banking Financial Companies (NBFCs).
The central bank"s latest move, after extensive stakeholder consultations, also comes against the backdrop of previous instances, including the collapse of IL&FS in 2018 and later DHFL, that had a spillover impact on the entire financial system, especially in terms of liquidity woes.
Since then, the focus shifted to having tighter regulations rather than a light touch approach for the country"s shadow banking sector.
Unveiling the four-layered framework, RBI on Friday said that over the years, the NBFC sector has undergone considerable evolution in terms of size, complexity, and interconnectedness within the financial sector.
Many entities have grown and become systemically significant, and hence there is a need to align the regulatory framework for NBFCs keeping in view their changing risk profile, it said in a statement.