Vulnerability of NBFC sector still a concern: RBI governor

Addressing the FICCI National Executive Committee Meeting, the RBI chief said the regulation of NBFCs is not on a par with banks and the central bank is committed to ensuring that no large shadow lender fails.

According to Das, RBI has increased regulatory restrictions on NBFCs since the collapse of Infrastructure Leasing and Financial Services Ltd (IL&FS) last year. These include introduction of liquidity coverage, and appointment of chief risk officers in these companies.

“Vulnerability of NBFCs remains a concern. NBFCs are not at par with banks in terms of regulations. We don’t want a repeat of the crisis in another NBFC. In April 2019 MPC, I had said it will be our endeavour to ensure that no large NBFC fails. Thereafter, we have been extensively monitoring the top 100 NBFCs," he added.

Replying to a question on why loan-to-value ratio is low for gold loan NBFCs, Das said this was kept to ensure stability in the financial sector. “Any sort of volatility in gold prices can undermine the NBFC business. For banks the business is a small portfolio," he added.

In the annual report released last month, RBI had said it is closely monitoring 50 top non-bank lenders and has cancelled the registrations of another 120 of such lenders for non-compliance of norms.

According to the central bank, it has strengthened on-site supervision of non-banking financial companies (NBFCs) during the year, including greater coverage of core investment companies and government-owned companies along with “incisive on-site supervision of smaller NBFCs".

RBI plans to undertake a scale-based approach for regulation of NBFCs to identify a small set of so-called ‘systemically significant’ non-bank financiers, which can potentially impact financial stability.