Discussion Paper on Revised Regulatory Framework for NBFCs: A
Scale Based Approach
The Non-Banking Finance Company space has attracted the Reserve
Bank of India s (RBI) gaze, again, of late with the regulator
releasing a statement and a discussion paper at different times in
the space of the last 60 days.
On December 4 2020, the RBI in a statement
1 on
developmental and regulatory policies, set out the need for
regulation and supervision over NBFC (Non-Banking Financial
Companies).
A Discussion Paper
2 on the same was published on
January 22, 2021 inviting responses and suggestions by February 22,
2021.
NBFCs are regulated in India on the principle of
proportionality: calibrated regulatory measures that are
Where the RBI errs is in assuming more regulation of NBFCs will automatically mean greater safety. This is not true, as we saw in the context of the spectacular collapse of Yes Bank and Lakshmi Vilas Bank. Regulation that is not backed by adequate and effective supervision merely adds to compliance costs without serving the objective of financial sector stability.