Finance > Banks & institutions > Companies (banking) > RBI
25 January 2021
Reserve Bank of India (RBI) has proposed to introduce a scale-based regulatory framework, anchored on proportionality, for non-banking financial companies (NBFCs).
RBI said the proposed regulatory and supervisory framework of NBFCs shall be based on a four-layered structure – Base Layer, Middle Layer, Upper Layer and a possible Top Layer.
If the framework is visualised as a pyramid, the bottom of the pyramid, where least regulatory intervention is warranted, can consist of NBFCs, currently classified as non-systemically important NBFCs (NBFC-ND), NBFCP2P lending platforms, NBFCAA, NOFHC and Type I NBFCs.
Moving up, the next layer can consist of NBFCs currently classified as systemically important NBFCs (NBFC-ND-SI), deposit taking NBFCs (NBFC-D), HFCs, IFCs, IDFs, SPDs and CICs. The regulatory regime for this layer shall be stricter compared to the base layer. Adverse regulatory arbitrage vis-à-vis
In view of the recent stress in the Non-Banking Financial Compnies (NBFC) sector, it has become imperative to reexamine the suitability of regulatory approach, especially when failure of an extremely large NBFC can precipitate systemic risks, the RBI said today. The central bank has proposed a multiple layer structure to categorise NBFCs depending on their size and interconnectedness with the system.
RBI stated that regulatory framework of NBFCs shall be based on a four-layered structure- Base Layer (NBFC-BL), Middle Layer (NBFC-ML), Upper Layer (NBFC-UL) and Top Layer. Proposed regulatory framework for these layers is enumerated and it may be noted that the regulatory framework envisages a progressive increase in the intensity of regulation, noted the central bank.