Group representing NBFCs seeks revisit of membership norm for SRO

Finance Industry Development Council has sought a meeting with the central bank

The Finance Industry Development Council (FIDC) has requested the central bank to reconsider the membership guidelines for self-regulatory organisations (SROs) for non-banking financial companies (NBFCs). The industry association wants the stipulation that 10 per cent of the membership be drawn from the base-layer of NBFCs to be narrowed only to firms that provide loans and have direct customer interface. Additionally, a clarification has been sought as to whether an NBFC can be a member of more than a single SRO.

FIDC has sought a meeting with the Reserve Bank of India (RBI) on these issues.

In its communication to the central bank on July 3, FIDC – which is also an SRO aspirant – said that 8,793 NBFCs are registered in the base-layer as of March 31, 2024. Many of these NBFCs operate solely as investment companies without direct customer interaction. Its view is that since the intent behind setting up SROs is to promote innovation, transparency, and customer protection among NBFCs, “the membership criteria should specifically target NBFCs that provide loans and have direct customer interfaces.”

Base-layer NBFCs are those with assets of less than Rs 1,000 crore and reside in the lowest rung of the central bank’s scale-based regulations framework.

FIDC has a membership of 160-odd NBFCs and to abide by the RBI stipulation issued last month (June 19), it has to broaden this to 979.

It is speculated that given the nature of the NBFC space, which has firms with businesses ranging from home loan players to full-service providers (deposit and non-deposit taking), a case of more than two SROs for the sector may also be taken up with the banking regulator. The central bank’s stance is that “a maximum of two SROs for the NBFC sector will be recognised”.

On dual membership, FIDC has pointed out that if a regulated entity (RE) is permitted to have voluntary memberships with two SROs, it’s level of interface with each such SRO would be highly fragmented. To ensure an RE registered as a member with an SRO is duly adhering to and compliant with the code of conduct stipulated by the specific SRO; and that the latter is able to effectively ensure governance and exercise necessary oversight on the regulatory actions of the members, FIDC has sought the RBI’s view on dual membership.

What is on the table

Relook of norm that 10 per cent of the membership be drawn from the base-layer of NBFCs

Whether only NBFCs that provide loans and have direct customer interface in base layer are to be considered

Exclusion of entities that operate solely as investment companies

Clarification as to whether an NBFC can be a member of more than a single SRO