Global Economy

Need to relook at regulation and supervision of NBFCs: RBI Governor


The Reserve Bank of India Governor Shaktikanta Das has said that there is a need to relook at the regulation and supervision of non-bank lenders especially in light of the liquidity crisis the sector faced since systematically important shadow lender IL&FS collapsed last year.

The regulator was working towards an optimal level of regulatory controls so that the NBFC sector remains resilient, he said.

“In the light of recent developments, there is a case for having a fresh look at their regulation and supervision,” Das said while addressing students at the National Institute of Bank Management. “It is our endeavour to have an optimal level of regulation and supervision so that the NBFC sector is financially resilient and robust.”

The Reserve Bank is monitoring the activity and performance of the NBFC sector with a focus on major entities and their inter-linkages with other sectors and will not hesitate to take any required steps to maintain financial stability, he reiterated.

The NBFC sector has been facing a credit crunch owing to debt repayment worries around the infrastructure leasing and financial services Dewan Housing Finance and the Zee Group, which had pushed funding costs for non-bank financial companies (NBFCs) to multi-year highs. Spreads on top-rated five-year bonds of Indian non-banking lenders rose 90 basis points or 0.9 percentage points in one year but cooled off in the past two months.

The RBI Governor also conveyed that while government’s capital infusion had helped public sector banks to improve their balance sheets, they should not become too dependent on government funds and instead also access the capital market for mobilisation of funds.

He also said there was a need to closely monitor the performance of MDs and CEOs of public and private sector banks by the Board of Directors either through a sub-committee or through an external peer group review.

“In order to improve the functioning of the PSB boards and to foster corporate governance, it is important to enhance their quality and stability through further streamlining appointment process, succession planning and compensation,” Das added.





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