TIGHTENING THE SCREWS

Non-Banking Financial Corporations (NBFCs) due to their magnitude, intricacy and interconnectedness are revolving systematically over the years.

- Shivanand Pandit

NBFCs are the greatest net debtors of funds from the financial system and procured more than fifty percent of their funding from scheduled commercial banks. As a result, considering the topical strain in the sector and being stuck in inter-connections between NBFCs and banks, the stock markets, and other monetary sector units, the Reserve Bank of India (RBI) has sought to reassess NBFCs' governing framework, embracing a scale-based tactic.

Subsequent to its declaration in the December 2020 policy, in January 2021, the RBI has unconfined a discussion paper on the amended regulatory charter for NBFCs. The RBI in its discussion paper on Revised Regulatory Framework for NBFCs - a Scale-Based Approach mentioned its suggested framework could be envisaged as a pyramid, covering NBFCs classified in four coatings - Base Layer (BL), Middle Layer (ML), Upper Layer (UL) and a possible Top Layer (TL). The discussion paper contains rules about capital requirement, concentration norms, governance rules and disclosure obligations for every layer. The RBI has recommended stringent standards and the formation of a multilayer model to safeguard financial solidity and diminish systemic jeopardies