Panel May Recommend Separate Regulator For Nbfcs
The Narasimham panel, formed in December to take stock of banking sector reforms, may recommend the setting up of a separate agency to regulate non-banking finance companies (NBFCs). The panel is expected to submit its report by March 1998.
Sources said the need for a separate agency is imperative for two major reasons firstly, the sheer number of companies in the sector, and secondly the significant rise in public deposits the sector has mobilised during the past four years.
Such a specialised agency for the finance companies will have to be carved out of the Reserve Bank of India (RBI), the way the Exim Bank of India or National Bank for Agriculture and Rural Development (Nabard) or the National Housing Bank (NHB) was created to regulate trade, agriculture and the housing sectors respectively. NBFCs currently are regulated by a separate department in the Reserve Bank.
Sources said the Narasimham panel is studying the issue of monitoring the finance companies. At the moment the NBFCs are regulated by a separate department in the Reserve Bank of India.
At some point of time whether it can be hived off as a separate agency, I should think that the Narasimham panel is looking at it, sources said.
Because certainly the regulation of NBFCs is a very specialised job. The RBI has the skills, maybe not all the skills, but it has more skills than any other agency today. Let us hope that the RBI is able to regulate the NBFCs through its separate department. But if the RBI thinks that the regulation would require a separate agency the way NHB or EXIM Bank or Nabard were created they were all part of the RBI once then they will do it, sources added.
The wide scale of operations of the NBFCs in the country, make it possible for mainly off-site monitoring of their business.
Any on-site monitoring of the nearly 40,000 finance companies would require a massive field staff.
Sources pointed out that until now the regulation on the NBFCs lacked focus.
However, the tough measures announced by the central bank on January 1, signalled the beginning of a new phase of regulations of the para-banking sector.