{"id":78374,"date":"2021-01-27T15:30:12","date_gmt":"2021-01-27T10:00:12","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=78374"},"modified":"2021-01-27T19:10:20","modified_gmt":"2021-01-27T13:40:20","slug":"need-for-new-4-tier-regulations-for-nbfcs","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/need-for-new-4-tier-regulations-for-nbfcs\/","title":{"rendered":"Need for New 4-tier Regulations for NBFCs"},"content":{"rendered":"<p><b>Source: <\/b><a href=\"https:\/\/epaper.thehindu.com\/Home\/ShareArticle?OrgId=GFE87268N.1&amp;imageview=0\"><span style=\"font-weight: 400;\">click here<\/span><\/a><\/p>\n<p><b>Syllabus: <\/b><span style=\"font-weight: 400;\">GS 3<\/span><\/p>\n<p><b>Synopsis: <\/b><span style=\"font-weight: 400;\">The RBI\u2019s plan to tighten regulations on large NBFCs is critical for financial stability.<\/span><\/p>\n<p><b>Introduction\u00a0<\/b><\/p>\n<p><span style=\"font-weight: 400;\">The RBI has planned an important change in its regulatory approach towards India\u2019s non-banking financial companies (NBFCs). It plans to monitor larger NBFCs almost as closely as it monitors banks.<\/span><\/p>\n<p>Read &#8211;<a href=\"https:\/\/forumias.com\/blog\/4-tier-structure-for-regulation-of-nbfcs\/\"> 4-tier structure for regulation of NBFCs| ForumIAS Blog<\/a><\/p>\n<p><b>What was the need for a change in the regulatory framework?<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><b>\u00a0The size of NBFC has increased from just about 12% of banks in 2010 to a quarter of the banking sector.<\/b><\/li>\n<li>The growth has been facilitated by the lighter regulations on sourcing funds from home loans to micro-finance and large infrastructure projects.<\/li>\n<li style=\"font-weight: 400;\"><b>However, These lighter regulations revealed a systematic risk<\/b><span style=\"font-weight: 400;\">. For instance, IL&amp;FS\u2019s payment defaults resulted in a large scale economic crisis in 2018.\u00a0<\/span><\/li>\n<\/ul>\n<p><b>What is RBI\u2019s proposed regulatory structure?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">The RBI has introduced a four-tiered regulatory structure. By this, RBI is striking a balance between the need for low regulations and less systemic risks in the sector.\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><b>First,<\/b><span style=\"font-weight: 400;\"> For smaller NBFCs, regulations are light, on the basis of a largely \u2018let it go\u2019 approach.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Second,<\/b><span style=\"font-weight: 400;\"> For the largest NBFCs, it is imposing tougher \u2018bank-like\u2019 capitalization, governance, and monitoring norms. It is with an aim to reduce a systemic risk due to the nature of their operations.<\/span><\/li>\n<\/ul>\n<ul>\n<li style=\"font-weight: 400;\"><b>Third,<\/b><span style=\"font-weight: 400;\"> the top tier will be activated only when a certain large player poses \u2018extreme risks\u2019. NBFC categorized in this tier will face the toughest regulations.<\/span><\/li>\n<\/ul>\n<p><b>Way forward<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The banking sector is in despair over the past two years (PMC Bank, Yes Bank, Lakshmi Vilas Bank). Thus, a complete restart of the omission tool for NBFCs is critical to keep the confidence and maintain financial stability.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It is hoped that the plan for the regulation of NBFCs is official soon. This would ensure the new economic recovery is not hampered by funding constraints.<\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Source: click here Syllabus: GS 3 Synopsis: The RBI\u2019s plan to tighten regulations on large NBFCs is critical for financial stability. Introduction\u00a0 The RBI has planned an important change in its regulatory approach towards India\u2019s non-banking financial companies (NBFCs). It plans to monitor larger NBFCs almost as closely as it monitors banks. Read &#8211; 4-tier&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/need-for-new-4-tier-regulations-for-nbfcs\/\">Continue reading <span class=\"screen-reader-text\">Need for New 4-tier Regulations for NBFCs<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":78560,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[1278],"class_list":["post-78374","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-9-pm-daily-articles","category-public","tag-eco_4","entry"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2021\/01\/Need_for_New_4-tier_Regulations_for_NBFCs.png?fit=1379%2C919&ssl=1","views":{"total":0,"cached_at":1700782730,"cached_date":1704924887},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/78374","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=78374"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/78374\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media\/78560"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=78374"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=78374"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=78374"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}