INSUBCONTINENT EXCLUSIVE:
RBI's new framework will have a four-tier structureThe Reserve Bank of India on Friday released a final set of tighter, bank-like
regulations for the non-bank finance sector to ensure better monitoring and prevent any failures from having knock-on effects on the rest of
the financial world.The central bank has gradually moved towards tighter norms for non-banking finance companies (NBFCs) since one of the
biggest firms - Infrastructure Leasing - Financial Services - collapsed in late 2018 amid fraud allegations.The following year Dewan Housing
Finance Corp and Altico Capital defaulted on payments, while Srei Infrastructure Finance joined the list of defaulters in 2021."Many
entities have grown and become systemically significant and hence there is a need to align the regulatory framework for NBFCs keeping in
view their changing risk profile," the RBI said.The new framework will have a four-tier structure with only about 25 to 30 of the 9,000-plus
NBFCs in the top two tiers with the strictest regulations."The top layer will ideally remain empty
This layer can get populated if the Reserve Bank is of the opinion that there is a substantial increase in the potential systemic risk from
specific NBFCs in the upper layer
Such NBFCs shall move to the top layer from the upper layer," RBI said.The central bank said NBFCs not using public funds or having any
exposure to consumer funds have a different risk profile and need different regulatory treatment and the RBI will draw up separate
regulations for them.It also said that exposure to capital markets, both directly and indirectly, as well as to commercial real estate will
be treated as sensitive areas for NBFCs and that the firms will need to fix board-approved internal limits for such exposures separately.It
set even more conservative limits if they want
The IPO funding ceiling will take effect in April, the central bank said.
