The RBI’s plan to tighten scrutiny of large NBFCs is critical for financial stability
The RBI has proposed a significant shift in its regulatory approach towards India’s non-banking financial companies (NBFCs), from a general approach of light touch regulation to one that monitors larger players almost as closely as it does banks. If implemented, this could be the biggest overhaul of the regulatory framework for such finance companies (or shadow banks) in over two decades. After multitudes of investors were left high and dry as CRB group firms reneged on high-interest fixed deposits in 1997, Parliament bestowed greater powers over such firms to the central bank to fix the mess. The trigger now is similar though the scale of the problem has changed. The size of NBFC balance sheets is now more than a quarter of that of banks’ balance sheets, from just about 12% in 2010. In absolute terms, their balance sheets have more than doubled, from ₹20.7-lakh crore in 2015 to ₹49.2-la