The Reserve Bank of India (RBI) intends to tighten the supervisory structure for non-banking monetary firms (NBFCs) in view of the systemic dangers rising from their measurement and interconnectedness.
“Higher risk appetite of NBFCs has…contributed over time to their size, complexity, and interconnectedness, thus, making some of the entities systemically significant that pose potential threat to financial stability,” the RBI mentioned in its annual report for FY22. “The balance sheet of NBFCs expanded in 2021-22, but asset quality in the sector deteriorated,” the report noticed.
Considering the numerous share of funding absorbed by NBFCs on the system degree, continued consideration to their monetary well being is warranted from the perspective of monetary stability, the report added.
“NBFCs and urban cooperative banks (UCBs) will have to be mindful of frailties, wherever they exist, in their balance sheets and ensure robust asset-liability management, apart from improving the quality of their credit portfolios,” the annual report said.
The evaluate of the supervisory structure will comply with a 12 months of regulatory revamp for NBFCs.
Through a number of circulars in FY22, the RBI has detailed the brand new scale-based regulatory framework for non-bank lenders and issued recent tips for microfinance establishments (MFIs).
In the present 12 months, the regulator plans to evaluate the supervisory framework and the return format for NBFCs underneath the Indian Accounting Standards (Ind-AS) based mostly on the regulatory steerage within the matter. The RBI may also make adjustments in sectoral evaluation within the context of the scale-based regulatory framework and roll out key danger indicators (KRIs) for NBFCs to evaluate their cybersecurity danger profile. An data know-how (IT) examination for choose NBFCs can also be on the playing cards.
The revised supervisory framework will embrace the implementation of a risk-based strategy for KYC supervision of choose NBFCs and tips on the compliance operate. A unified fraud reporting system is being envisaged for all supervised entities, who may also be made to undertake cyber safety enhancement measures.
The RBI intends to additional strengthen the audit mechanisms at NBFCs and likewise to scale up operations of the faculty of supervisors (CoS) for capability growth and ability enhancement of its supervisory employees.
Source: www.financialexpress.com”