After delivering the 33rd Frank Moraes Memorial Lecture, organised by the United Writers Association and the Frank Moraes Foundation here on Monday, he told reporters, “We are working on certain statutory changes relating to the NBFC sector. We are working with the government for making certain statutory amendments to tighten the regulation, especially the definition of regulation.”
“We want to make it more tight, so that it will be easy for everybody to understand what is a deposit, who can and who cannot accept it. That clarity we want to bring in.”
He said a schedule for the new regulations couldn’t be stated. RBI would also evolve a mechanism to gather information about the activities of non-banking firms and new developments.
“We are addressing regulatory arbitrage concerns, while not forgetting the uniqueness of the NBFC sector,” said Gandhi, who was talking on ‘Role of NBFCs in financial sector: Regulatory challenges’.
Gandhi said there was a demand for all kinds of NBFCs to be permitted to act as banking correspondents and RBI was examining this. “We will shortly take a call on this. It is certainly on the anvil,” he said. He added an exchange to support small and medium-scale companies to get funds earlier was also under consideration.
RBI’s constant endeavour was to enable prudential growth of the sector, keeping in view the multiple objectives of financial stability, consumer and depositor protection, and need for more players in the financial market, addressing regulatory arbitrage concerns, while not forgetting the uniqueness of the NBFC sector, said Gandhi. He urged companies not to stop on financial innovation and to have adequate risk management procedures in place.
“Empowering law and gathering intelligence by themselves are not sufficient. Enforcement of the law was a challenge and this was primarily because of the various agencies involved in regulating the non-banking financial activities of the entities,” said Gandhi, while calling for cooperation of all stakeholders, starting from central ministries and agencies. He felt the law as it stood at present was inadequate to deal with issues related to “erring” NBFCs. “To correct these and initiate action against violations, we need to bring suitable amendments to the statutory provisions. Reserve Bank is working with the government for such improvements,” said Gandhi.
NBFCs, being financial intermediaries, engaged in bringing the saving and investing communities together. In this, they played a complementary role to banks rather than as competitors, considering a major portion of the population was yet to have access to mainstream financial products and services, including a bank account, he noted.