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Proposal for strict laws on non-banks put forward by RBI

The Reserve Bank of India is tended to increase the strictness on non-banking entities.

The central bank has put forward the proposal to categorize the shadow banks into four different categories or groups.

This categorization will be done on the basis of their systematic importance. The potential risks regarding the stability of the financial system stability will also be considered.

While RBI has proposed to increase the scan of these shadow banks, it has also come up with some flexibility as well.

RBI has assured the shadow banks, despite the proposed changes in the new guidelines, will still be allowed to engage in niche sectors. The markets will still have the flexibility in business operations.

This change is meant to prevent the crisis like one happened in payment defaults in 2018 led by Infrastructure Leasing and Financial Services Ltd.

By then Infrastructure Leasing and Financial Services Ltd was one of the largest shadow lenders in India.

This liquidity crisis crushed the funding to all the non-banks. This scenario has evolved with many other lenders since that time.

RBI has further increased the net-owned funds requirement for NBFCs to Rs 20 crore from Rs 2 crore earlier.

However, RBI has proposed no changes to the existing capital requirement for NBFCs, which currently is at 15%, with minimum Tier 1 of 10%.


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