Mumbai: The Reserve Bank of India (RBI) has indicated that its new norms on nonbanking finance companies (NBFCs) have been developed under pressure from association of regulators worldwide and part of a concerted global move to reign in ‘shadow’ banking activities. The regulator, however, clarified that small NBFCs that fail to receive a registration can continue to be in business and avail bank finance.
“This is part of an international agenda and all responsible countries have to abide,” said Anand Sinha, deputy governor, RBI, said on Monday while addressing NBFC representatives in a meeting organized by the Finance Industry Development Council at the Indian Merchants Chamber here. Stating that RBI has to align with what is happening internationally, Sinha said that after the global financial crisis of 2008 the focus has been on institutions that engage in ‘shadow’ banking — financial entities that conduct banking like functions but do not have a banking licence. “Banks are being subject to very restrictive regulations. If regulations for banks are tightened, risks will flow to lightly regulated entities,” said Sinha.
Representatives of the finance industry, however, said that the move by RBI to increase capital requirement and tighten bad loan norms for finance companies would force several companies out of business.
“If it is the intention of the RBI to remove regulatory arbitrage, then it should remove the arbitrage on both sides of the balance sheet,” said T T Srinivasaraghavan, MD, Sundaram Finance. According to Srinivasaraghavan, finance companies have to hold higher capital than banks even if the assets held by them are of identical quality. Also, banks get tax breaks on bad loans which finance companies do not, he said.
Courtesy:
TIMES NEWS NETWORK
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