- The government is considering a proposal from the Reserve Bank of India(RBI) seeking more powers to improve its regulatory and supervisory mechanism for non-banking financial companies(NBFCs).
- This proposal came after RBI had called for greater surveillance on large entities in India’s Non-banking financial companies(NBFC) as their failure could lead to losses that are similar to those of big banks.
- NBFCs are regulated and supervised by the central bank as per powers vested in it under the provisions contained in Chapter IIIB of the Reserve Bank of India Act,1934.
- But the RBI has conventionally adopted light-touch regulatory approach towards NBFCs to enable them to reach the masses through innovative financial products and service delivery mechanisms.
- However,NBFC have seen their source of funds suddenly dry up after a series of defaults by Infrastructure Leasing & Financial Services(ILFS) that has triggered a liquidity crisis.
- Further,RBI has taken steps to enhance its supervision of NBFCs such as increasing the periodicity of monitoring their books to 12 months from 18 months.NBFCs with assets over Rs 5,000 crore have been asked to appoint a chief risk officer to improve their standards of risk management.
- An NBFC is a company registered under the Companies Act,1956.It engages in the business of (a)loans and advances (b)acquisition of shares /stocks/ bonds/ debentures/securities issued by Government or local authority or other marketable securities of a like nature leasing and (c)hire-purchase,insurance business,chit business.
- However,it does not include any institution whose principal business is that of (a)agriculture activity (b)industrial activity (c)purchase or sale of any goods (other than securities) and (d)providing any services and sale/purchase/construction of immovable property.
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