Budget Briefs: RBI can supersede NBFC board

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  1. The government has decided to strengthen regulatory authority of Reserve Bank of India (RBI) over non-banking financial companies (NBFCs).
  2. Finance Minister has said that the RBI will now be the regulator of Housing finance companies(HFC) replacing the National Housing Bank(NHB).
  3. According to the Finance Bill,2019,RBI can now remove the director of an NBFC and even supersede its board in the public interest or to prevent the affairs of NBFC being conducted in a manner detrimental to the interests of depositors or creditors.
  4. Another proposed amendment to the RBI Act will allow RBI to frame schemes for amalgamating,splitting and reconstructing an NBFC if it feels it is required after looking into the NBFCs books of account.
  5. This decision was taken after RBI had called for greater surveillance on large entities in India’s NBFC as their failure could lead to losses that are similar to those of big banks.
  6. Further,NBFCs 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.
  7. The minister has also proposed to set up an Expert Committee to study the current situation relating to long-term finance and our past experience with development finance institutions.