FSB asks India to examine costs of NBFCs raising public money

Indian authorities need to examine "benefits and costs" of non-banking financial companies being permitted to raise funds from public in the context of financial stability, global body FSB said.

The Financial Stability Board (FSB) also said Corporate Affairs Ministry, which is currently the oversight authority for non-financial companies, sees "its role mainly as a repository of corporate information rather than a regulator per se".

While these companies' deposit-taking activities are subject to a number of restrictions, information on the extent and nature of those activities is limited, it noted.

Noting that not all deposit-taking activities are regulated by RBI, the report said industrial, manufacturing and other non-financial companies are allowed to take deposits -- both from their employees and others -- under the Companies Act 2013 which is overseen by the Corporate Affairs Ministry.
 

According to FSB, the practice appears prima facie inconsistent with RBI's policy to discourage deposit mobilisation activities outside banks.

"It may therefore be useful for the authorities to examine the benefits and costs of this activity from a financial stability perspective," FSB said in its peer review report of India.

The suggestion comes against the backdrop of rising instances of investors getting duped by illegal money pooling schemes even as various Indian regulators and agencies have been taking steps to curb the menace.

FSB, which brings together entities from 24 countries and jurisdictions, works towards promoting effective regulatory, supervisory and other financial sector policies in the interest of financial stability.

India is represented by RBI, Sebi and the Finance Ministry at FSB.

Besides, the peer review report has recommended that authorities should continue to improve the timeliness and granularity of data collected from NBFEs (Non Banking Financial Entities) and enhance their analysis by carrying out horizontal reviews across different types of entities operating in the same market segment.

In its report, FSB has also emphasised that India needs to do additional work for having a comprehensive macroprudential policy framework with "clearer boundaries" for various authorities including RBI.