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The government will set up a separate institution under the Reserve Bank of India (RBI) to regulate non-bank finance companies (NBFCs) and amend the RBI Act to transfer regulations in the sector to a new NBFC Act.

According to former special secretary (banking) C M Vasudev, an RBI committee is working on the plan. "The committee is looking at regulations regarding NBFCs in the RBI Act. These regulations will be transferred to a new NBFC Act," said Vasudev, who was yesterday appo-inted the expenditure secretary.

On a separate regulator, he said, "Ultimately, we have to move in that direction." Vasudev said a separate body to regulate the NBFCs sector would have to be carved out of the RBI, in the same way as the National Housing Bank was created for the housing sector or the Exim Bank for trade financing or the National Bank for Agriculture and Rural Develop-ment for the agriculture sector.

He said the provisions relating to NBFCs in the RBI Act would be amended and incorporated in a new NBFC Bill. The new entity will come into being after the Bill is ratified by Parliament.

The move follows the submission of the Vasudev panel report on NBFCs last year. The panel had suggested a separate `instrumentality' under the aegis of the RBI to regulate NBFCs.

There are around 45,000 NBFCs in the country. According to industry officials, an effective off-site and on-site monitoring of these financial intermediaries will require a separate institution. The recommendations relating to delinking of credit rating from the deposit mobilisation activity of the NBFCs and increasing the minimum capital requirement have already been implemented.

The panel also suggested measures such as depositor grievanc