Page 30 - BANKING FINANCE OCTOBER 2021

ARTICLE

TIGHTENING

THE

SCREWS

N on-Banking Financial Corporations (NBFCs) due to on the amended regulatory charter for NBFCs. The RBI in

its discussion paper on "Revised Regulatory Framework for
their magnitude, intricacy and inter-
connectedness are revolving systematically over
NBFCs - a Scale-Based Approach" mentioned its suggested
the years. NBFCs are the greatest net debtors of
funds from the financial system and procured more than framework could be envisaged as a pyramid, covering NBFCs
classified in four coatings - Base Layer (BL), Middle Layer
fifty percent of their funding from scheduled commercial (ML), Upper Layer (UL) and a possible Top Layer (TL). The
banks. As a result, considering the topical strain in the sector discussion paper contains rules about capital requirement,
and being stuck in inter-connections between NBFCs and concentration norms, governance rules and disclosure
banks, the stock markets, and other monetary sector units, obligations for every layer. The RBI has recommended
the Reserve Bank of India (RBI) has sought to reassess stringent standards and the formation of a multilayer model
NBFCs' governing framework, embracing a scale-based to safeguard financial solidity and diminish systemic
tactic. jeopardies

Subsequent to its declaration in the December 2020 policy, Although there will be minimum controlling interference for
in January 2021, the RBI has unconfined a discussion paper NBFCs in the Base Layer, as one marches up the pyramid,
the regulatory system will get hard and stricter. The
framework proposes to stipulate Bank-like protocols for the
About the author top 25 to 30 NBFCs in India. To facilitate the NBFCs to design
a plan for execution, a time-period of eight weeks will be
Shivanand Pandit offered to them. According to the RBI, within the assigned
Autonomous Finance and Tax Adviser duration, the NBFCs should put in place a board-authorized
Margao, Goa strategy towards the implementation of the enhanced

30 | 2021 | OCTOBER | BANKING FINANCE