Reserve Bank Prioritises Nbfcs For Regulation

The Reserve Bank has prepared a priority list of the non-banking finance companies for regulation and has placed deposit accepting companies at the top of this list.

RBI officials said the central bank was focusing on deposit accepting companies as the risk profile of the activities of these companies was much higher since they were playing with public deposits. To reduce the degree of systemic risks and minimise the occurrence of defaults on deposits, the RBI will strictly implement its new regulation norms for the companies accepting public deposits.

The RBIs department of non-banking supervision will primarily focus on companies accepting public deposits called A category companies, then on companies not accepting public deposits but actively involved in financial services called B category companies, and then on core investment companies called C category companies.

 

The RBI said its decision followed the mushrooming of small deposit accepting companies and then the spree of defaults by many of these players over the last two years which resulted in a weakening of the entire sector.

Hence, the RBI will strictly implement its norms for the regulation of these companies. The RBI hopes to strengthen this sector over the coming three years.

To start with, the RBI will quickly complete the registration procedure for non-deposit holding companies. Core investment companies, which are group holding companies, will have to submit to the RBI documentary evidence of its status following which the RBI will quickly grant registration. Following these companies, the other non-deposit accepting companies will come up for consideration. The RBI plans to expedite with these two as quickly as possible.

RBI sources said that non public deposit accepting companies did not pose that much of a danger to the system as they are not holding public funds.

Hence, in their case, the registration process will be much simpler. Consequently, the certificate will be granted to them quickly. They will have to submit documentary evidence from their banker, auditor or other financial statements indicating their status.

In case of NBFCs accepting deposits, the RBI has appointed auditors to gain more information about these companies. Following the reports of the auditors as well as its own inspection, the RBI will grant certificates to these companies.

Moreover, the RBI has decided that those NBFCs which are categorised as non-deposit accepting companies will be strictly prohibited from accepting deposits. If they want to turn into deposit accepting companies, they will have to reapply for registration.