RBI calls for stricter laws for shadow banks

65 0

In a move to protect the interests of investors the Reserve Bank of India (RBI) is expected to propose stricter laws on shadow banking in India. Sources privy to the development said that this will protect sustainability of banking sector which has been under stress. Further, tightening of laws will also prevent vested interests from taking advantage, they pointed out.

India’s apex bank has been advocating stricter norms since the time Infrastructure Leasing & Financial Services, India’s largest NBFC became bankrupt in 2018 and in the following year in 2019, Dewan Housing Finance Corp and Altico Capital, defaulted on payments.

Sources said that RBI is expected to bring this up in a discussion paper in the near future, however, as the proposal is still being worked on, officials didn’t comment further. RBI is also expected to propose that large non-banking finance companies maintain a cash reserve ratio. This may be done in a phased manner with NBFCs being given time to comply.

RBI governor Shaktikanta Das discussing about the increased regulation for banks and shadow banks in recent years had said that cost of compliance to rules and regulations should be perceived as an investment, as any inadequacy in this regard will prove to be detrimental. 

NBFCs weren’t too happy of the development with a spokesperson commenting that shadow banks enjoy some flexibility in terms of last-mile financing, which banks can’t do. Narrowing the gaps between banks and non-banks could prove to be detrimental in the long run as financial inclusion is still low in India.

Sources also said that RBI may recommend regular scrutiny of the number of small NBFCs in India, especially keeping a check on their books of account.

Related Post

Leave a comment

Your email address will not be published. Required fields are marked *