TIGHTENING THE SCREWS
BANKING FINANCE|October 2021
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

Although there will be minimum controlling interference for NBFCs in the Base Layer, as one marches up the pyramid, the regulatory system will get hard and stricter. The framework proposes to stipulate Bank-like protocols for the top 25 to 30 NBFCs in India. To facilitate the NBFCs to design a plan for execution, a time-period of eight weeks will be offered to them. According to the RBI, within the assigned duration, the NBFCs should put in place a board-authorized strategy towards the implementation of the enhanced supervisory outline and such NBFCs should also be subject to obligatory listing requirements.

Four shades of pyramid

In preceding five years, size of balance sheet of NBFCs has more than doubled from Rs. 20.72 lakh crore (2015) to ?49.22 lakh crore (2020). Due to marvelous progress in the NBFC sector in recent years, the RBI has proposed a stiffer monitoring plan for the sector by creating a four-tier configuration with a progressive increase in concentration of directive.

Base Layer (BL): As per the discussion paper, the nature of activity will be the base for determining the base layer NBFCs. Therefore, NBFC-BL will consist of NBFCs which are presently categorized as non-systemically important NBFCs (NBFC-Non deposit-taking), besides Type I NBFCs which do not have either access to public funds or customer interface, Peer to Peer lending platforms (NBFC P2P), Non-Operative Financial Holding Company (NOFHC), Account Aggregators (NBFC-AA) and NBFCs up to Rs. 1,000 crore (raised from Rs. 500 crore) asset size.

Continue reading your story on the app

Continue reading your story in the magazine

MORE STORIES FROM BANKING FINANCEView All

Block Chain Technology - A Tool Of Digital Transformation

"Artificial intelligence, machine learning, Internet of Things, blockchain and big data hold potential to take India to new heights" -PM Sri Narendra Modi at the 2016 World Economic Forum (On launch of "IndiaChain" by NITI Aayog)

9 mins read
BANKING FINANCE
November 2021

RETAIL BANKING POST PANDEMIC: REPOSITIONING & RECALIBRATING FOR THE PRESENT & FUTURE

The COVID-19 pandemic has brought economies to a standstill and has provided considerable challenges to banking and financial institutions. However, the banking industry has shown tremendous alacrity during the ongoing pandemic.

8 mins read
BANKING FINANCE
November 2021

PHYGITAL BANKING: WAY AHEAD FOR INDIAN BANKING INDUSTRY

The banking sector has witnessed a massive transformation in the last few years. The shelf life of physical banks has reduced immensely.

7 mins read
BANKING FINANCE
November 2021

RBI'S PROPOSED CHANGES TO REGULATORY FRAMEWORK APPLICABLE TO 'HOUSING FINANCE COMPANIES' HFCS

The Central Government had, with effect from 9th August 2019, transferred regulatory powers of the Housing Finance Companies (HFCs) from the National Housing Bank (NHB) to the Reserve Bank of India (RBI).

10+ mins read
BANKING FINANCE
November 2021

ANALYTICS IN INDIAN BANKING: THE WAY FORWARD

Abstract: Indian Banking industry has undergone a series of transformations with the advent of Information Technology (IT) since 1980s, 1990s and 2000s in terms of applications of IT in different banking processes from various perspectives such as cost reduction, revenue generation, fraud detection, security issues etc. and this transformation is still continuing with new trend called Business Intelligence and Big Data Analytics. In the present banking scenario Big Data Analytics stands as the solution for the increasing competition and regulatory challenges with fraud and cyber security threats where banks are under rigorous pressure to improve the efficiency and revenue to sustain profit margins and customers. Analytics in Banking supports Decision Making to elevate revenue, control costs and mitigate risks. This in turn improves customer segment; target, create and retain customers along with customer understanding and risk management.

10 mins read
BANKING FINANCE
November 2021

Artificial Intelligence And Intelligent Banking

Is artificial intelligence less than our intelligence? - Spike Jonze

10+ mins read
BANKING FINANCE
October 2021

SIMPLIFYING 'SARFAESIA, 2002'

To expedite recoveries by the Banks, the law called as Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, 2002, popularly called as SARFAESIA has been enacted.

10+ mins read
BANKING FINANCE
October 2021

WOMEN AND MONEY MATTERS

We are part of a society that continues to view women as the weaker section. The age-old practices and norms always tended to give little importance to women down on the scale of progress.

7 mins read
BANKING FINANCE
October 2021

TIGHTENING THE SCREWS

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

6 mins read
BANKING FINANCE
October 2021

REDEFINING FARMERS INTEREST

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020 was promulgated on June 5, 2020. It provides a framework for the protection and empowerment of farmers with reference to the sale and purchase of farm products.

10+ mins read
BANKING FINANCE
October 2021
RELATED STORIES

India's Stressed Banks

“This is the classic crisis of confidence”

4 mins read
Bloomberg Businessweek
November 04, 2019

India Is The Latest To Meddle In Its Central Bank's Affairs

The autonomy of India’s central bank is under threat.

4 mins read
Bloomberg Businessweek
November 26, 2018

सोशल मीडिया पर शिकंजा, क्रिप्टोकरेंसी समेत 26 बिल शीतकालीन सत्र में होंगे पेश

29 नवंबर से शुरू होने वाले संसदीय सत्र में कई बिलों पर मचेगा हंगामा

1 min read
Hari Bhoomi
November 26, 2021

कृषि कानून वापस लेने वाला विधेयक भी पेश होगा

संसद के शीतकालीन सत्र में आएंगे 26 विधेयक

1 min read
Jansatta Delhi
November 24, 2021

क्रिप्टो करेंसी का जुनून

क्रिप्टो के उन्माद को हवा दे रहा है डिजिटल मुद्रा में युवा भारतीयों का 6 अरब डॉलर का निवेश. क्या यह बुलबुला है जो फूटने का इंतजार कर रहा है?

1 min read
India Today Hindi
December 01, 2021

डिजिटल कर्ज पर नोडल एजेंसी का सुझाव

भारतीय रिजर्व बैंक के एक कार्य समूह ने डिजिटल माध्यम से ऋण आवंटन करने वाले ऐप्लिकेशन की तकनीकी विश्वसनीयता की पुष्टि करने के लिए एक विशेष (नोडल) एजेंसी तैयार करने का प्रस्ताव दिया है। इस समूह ने अवैध ऋण आवंटन गतिविधियों पर अंकुश लगाने के लिए एक स्व-नियामकीय संगठन के अलावा कानूनी प्रावधान किए जाने की भी सिफारिश की है।

1 min read
Business Standard - Hindi
November 19, 2021

Brick by brick

The residential real estate market is on the rebound and headed for consolidation

4 mins read
THE WEEK
November 28, 2021

अगले वर्ष आरबीआई की डिजिटल करेंसी!

भारतीय रिजर्व बैंक (आरबीआई) की सेंट्रल बैंक डिजिटल करेंसी (सीबीडीसी) का पहला प्रायोगिक परीक्षण अगले वित्त वर्ष की पहली तिमाही में हो सकता है। यह बात केंद्रीय बैंक के एक वरिष्ठ अधिकारी ने आज भारतीय स्टेट बैंक के सालाना बैंकिंग एवं आर्थिक सम्मेलन में कही।

1 min read
Business Standard - Hindi
November 18, 2021

क्रिप्टो पर आरबीआई के रुख पर हो विचार

भारतीय रिजर्व बैंक (आरबीआई) के गवर्नर शक्तिकांत दास ने कहा है कि आभासी मुद्राओं (क्रिप्टोकरेंसी) के विषय पर फिलहाल और बहस एवं चर्चा की जरूरत है ।

1 min read
Business Standard - Hindi
November 17, 2021

Deeper issues with cryptocurrencies, says RBI Governor

For the second time in a week, RBI Governor Shaktikanta Das expressed his concerns over cryptocurrencies, saying there are far deeper issues involved in virtual currencies that could pose a threat to the country's economic and financial stability.

1 min read
The Free Press Journal - Mumbai
November 17, 2021