Regulation of Non-banking Financial Companies in India

Abstract

Non-Banking Financial Companies constitute an important branch of the finance sector. They
pioneer in their cash deployment, accessibility to the markets and others to count. Tremendous
progress during the 1980s and 1990s was due to rigorous efforts of the NBFCs world over. These
instances also led to blurring dividing lines between banks and NBFCs with some privileges
being reserved for the commercial banks. NBFCs are known for their higher risk taking capacity
than the banks. Despite being an institution of attraction for the investors, NBFCs have played a
significant role in the financial system. Many specialised services such as factoring, venture
capital finance, and financing road transport were championed by these institutions.

NBFC sector has more significantly seen a fair degree of consolidation, leading to the emergence
of large companies with diversified activities. However, the recent financial crisis has
highlighted the importance of widening the focus of NBFC regulations to take particular account
of risks arising from the regulatory gaps, from arbitrage opportunities and from inter-
connectedness of various activities and entities associated with the financial system. The
regulatory regime is lighter and different than the banks. The steady increase in bank credit to
NBFCs over the recent years means that the possibility of risks being transferred from more
lightly regulated NBFC sector to the banking sector in India cant be ruled out.

This project covers the meaning of NBFCs and their function. Further it talks about regulatory
and supervisory framework for the NBFCs. The second part of the project talks about Policy
Concerns & Regulatory Initiatives. The last part of will cover the Inter-connectedness of NBFCs
with Banks which will be followed by the conclusion and suggestions.

Keywords: NBFC, Regulation of NBFC, NBFC in India

Statement of Problem

The role of NBFCs has become very important in Indian Economy. The regulatory framework of
the NBFCs are not uniform. NBFCs has been divided into various sectors and are regulated from
the different statutory regulations. NBFC sector has more significantly seen a fair degree of
consolidation, leading to the emergence of large companies with diversified activities. However,
the recent financial crisis has highlighted the importance of widening the focus of NBFC
regulations to take particular account of risks arising from the regulatory gaps, from arbitrage
opportunities and from inter-connectedness of various activities and entities associated with the
financial system.

Hypothesis

Objective

The objective of the project is to undertake a detailed study of the:

Regulatory & Supervisory Framework for NBFCs

Policy Concerns & Regulatory Initiatives
NBFCs and Factoring Business- Emerging Views of RBI
Inter-connectedness of NBFCs with Banks

Research Questions

What is the Definition of the NBFCs?

Can NBFCs take Deposit form Public?
What are the Regulatory Framework for NBFCs?
What are the reforms in NBFCs?
What to Regulate?
What are the Policy Concerns & Regulatory Initiatives?
How NBFCs are connected with Banks?

Chapterisation

Chapter:-1 NBFCs in India: A Primer

Chapter: - 2 Regulatory & Supervisory Framework for NBFCs

Chapter 3: Policy Concerns & Regulatory Initiatives

Chapter 4: Inter-connectedness of NBFCs with Banks

Chapter 5: Conclusion