At a time when the Reserve Bank of India (RBI) is mulling tighter regulation around non-banking financial companies, these firms, also referred to as shadow banks, have written to the Prime Minister Narendra Modi that such regulations will hamper the growth of the sector.
“Regulation with the objective of aligning it with that of banks is leading to over regulation where NBFCs are being regulated like banks,” the letter that was sent to the prime minister’s office said. The letter was submitted after the chiefs of NBFCs met Mr. Modi last week.
‘Unique model’
“This is hampering the growth of the unique NBFC model of lending which has successfully withstood the adverse scenario like the 2008 global crisis and the recent liquidity crisis,” the letter said, highlighting the need for the regulator to also play the role of developer.
Last week, the Reserve Bank said it intends to strengthen the Asset-Liability Management framework for NBFCs on lines similar to that for banks and harmonise it across different categories of NBFCs.
The move comes after the sector faced stress on liquidity following the IL&FS crisis.
There are around 10,000 NBFCs registered with the RBI.
The Reserve Bank of India-regulated sector grew 15.8% in 2017-18. By the end of March 2018, it was 19.8% of the scheduled commercial banks (SCBs) taken together, in terms of balance sheet size. The shadow banks said systemically, NBFCs having asset base of ₹500 crore, must be allowed to accept public deposits. Since 1997, RBI has endeavoured to limit the operations and growth of NBFCs with the objective of securing depositors’ interest. There are only 108 deposit-taking NBFCs.
Further, it said application from an NBFC to convert to a bank should be treated differently from any other application for a banking licence.
“Since NBFCs are already subject to onsite and offsite inspection and regular submission of returns to RBI, due diligence of NBFC application for a bank licence should be less time consuming,” the letter said.
Among officials present at the meeting with the Prime Minister was Assocham president B.K. Goenka, Indiabulls chairman Sameer Gehlaut, Dewan Housing Finance chairman Kapil Wadhavan, Srei vice chairman Sunil Kanoria and Aditya Birla Capital CEO Ajay Srinivasan.
The sector also sought a liquidity window from the RBI, including for housing finance firms, against sale of secured loans by taking appropriate margins on these loans. They also said all HFCs should be permitted access to the NHB refinance facility. HFCs should be given time till December 31, 2020 to comply with the requirement that individual home loans should be more than 50% of the HFC’s assets, the letter said.
