Large NBFCs should convert into banks or shrink biz: RBI deputy guv Rao

Also proposes to eliminate regulatory arbitrage enjoyed by certain NBFCs that are slowly building up systemic risk

Reserve Bank of India’s newly-appointed Deputy Governor M Rajeshwar Rao on Friday said larger non-banking financial companies (NBFCs) should be regulated as strictly as banks to preserve financial stability. He advocated a more “calibrated and graded regulatory framework, proportionate to the systemic significance of entities concerned” as the way forward.  

“One can also argue that the design of a prudential regulatory framework for such NBFCs can be comparable with banks so that beyond a point of criticality to systemic risks, such institutions should have incentives either to convert into a commercial bank or scale down their network externalities within the financial