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Remove regulatory arbitrage between NBFCs and banks: RBI governor

FE Bureau
Reserve Bank of India, NBFC, Shaktikanta Das, NIBM, public-sector banks, Banks Board Bureau, latest news on shaktikanta das

The Reserve Bank of India (RBI) may be moving away from its light-touch approach to regulating non-banking financial companies (NBFCs) to one that reduces the regulatory arbitrage between them and banks, RBI governor Shaktikanta Das said on Saturday.

Speaking at the 15th annual convocation of the National Institute of Bank Management (NIBM), Pune, the governor said, The conventional approach to their (NBFCs ) regulation and supervision has been light-touch, so that they could complement banks with their diverse financial products for niche areas and reach a large cross-section of population through innovative service delivery mechanisms… In the light of recent developments, there is a case for having a fresh look at their regulation and supervision.

Final guidelines on the liquidity risk management framework for NBFCs will be issued shortly, Das added. In order to strengthen processes at public-sector banks (PSBs), the government, the Bank Board Bureau and the RBI are in the process of developing an objective framework for performance evaluation of these banks, Das said. Such a framework should redefine the contours of corporate governance in PSBs with a focus on transparency, accountability and efficiency, he added.

Das explained that to improve the functioning of the PSB boards and to foster corporate governance, it is important to enhance their quality and stability through further streamlining appointment process, succession planning and compensation. These aspects could be evaluated by bank boards and reviewed by the Banks Board Bureau. We need to create a pool of independent directors across areas of expertise, he observed.