Regulation of Non-Banking Financial Companies in India: Some Visions & Revisions
16 Pages Posted: 22 Feb 2014
Date Written: February 10, 2014
Non-Banking Financial Companies constitute an important branch of the finance sector. They pioneer in their cash deployment, accessibility to the markets and others to count. Tremendous progress during the 1980s and 1990s was due to rigorous efforts of the NBFCs world over. These instances also led to blurring dividing lines between banks and NBFCs with some privileges being reserved for the commercial banks. NBFCs are known for their higher risk taking capacity than the banks. Despite being an institution of attraction for the investors, NBFCs have played a significant role in the financial system. Many specialised services such as factoring, venture capital finance, and financing road transport were championed by these institutions.
NBFC sector has more significantly seen a fair degree of consolidation, leading to the emergence of large companies with diversified activities. However, the recent financial crisis has highlighted the importance of widening the focus of NBFC regulations to take particular account of risks arising from the regulatory gaps, from arbitrage opportunities and from inter-connectedness of various activities and entities associated with the financial system. The regulatory regime is lighter and different than the banks. The steady increase in bank credit to NBFCs over the recent years means that the possibility of risks being transferred from more lightly regulated NBFC sector to the banking sector in India can’t be ruled out.
Keywords: NBFC, Regulation of NBFC, NBFC in India
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