One of the issues that’s troubling the entire financial sector is the Reserve Bank of India (RBI) Governor and officials' repeated assertion that Non-Banking Financial Company (NBFC) regulations will now depend on their scale.
So, what does scale based regulation and supervision mean? There is a part of the market which fears that it could mean the statutory liquidity ratio (SLR)/cash reserve ratio (CRR) imposition on NBFCs as well. Will it?
The Former Deputy Governor of RBI, HR Khan explained scale based regulation at length.
“12-13 percent credit to gross domestic product (GDP) is accounted by NBFCs and almost 1/5th of bank credit is also accounted for them and 50 percent of their resources are raised from financial system. That’s why the importance of NBFCs have come to the fore. They are key players in the financial system; the regulation and supervision has to be upped to that extent,” said Khan in an interview to CNBC-TV18.
Therefore, said Khan, we need more norms for NBFCs as they now have a big pie in the financial services sector.
“Beyond a threshold, you will have much tougher and tighter regulation, but my sense is that we are not immediately moving towards CRR/SLR per se,” said Khan.
According to him, the focus should be on risk management, corporate governance, audit functions, board functions – these should be tighter and in alignment with the banking space than jumping to SLR/CRR.
For more details, watch the video