As per Finance Bill, 2019, the more power to regulate NBFC has been given to RBI. The proposed amendments would empower RBI to supersede the Board of an NBFC.
In order to strengthen NBFCs, RBI has stated that it has taken a number of measures to strengthen NBFCs and maintain stability of the financial system which includes the following:
- A regulatory and supervisory frameworks for NBFCs are being aligned with that of Scheduled Commercial Banks, which will help to eliminate the regulatory arbitrage between banks and non-banks,
- Minimum capital adequacy norms have been prescribed for different categories of NBFCs and for deposit-taking NBFCs, the deposit amount has been limited to 1.5 times of net owned fund.
- Net owned fund requirement for Asset Reconstruction Companies (ARCs) has been fixed at Rs. 100 crore on an ongoing basis.
- Supervision of NBFCs is carried out through on-site surveillance, off-site surveillance, market intelligence, and reports received annually from statutory auditors.
- With a view to extend temporary support to NBFCs and maintain stability of the financial system, RBI has been taking the following regulatory measures to alleviate stress in the NBFC sector:
- To encourage NBFCs to securitise/assign their eligible assets, the minimum holding period requirement for originating NBFCs was relaxed till December 2019.
- The single-borrower exposure limit for NBFCs that do not finance infrastructure was increased from 10 percent to 15 percent of capital funds, up to 31stMarch 2019.
- Banks were permitted to provide partial credit-enhancement for non-deposit accepting systematically-important NBFCs registered with RBI and housing finance companies (HFCs) registered with the National Housing Board (NHB) as per guidelines.
- RBI permitted special dispensation to banks till 31st rbiMarch 2019, whereby their incremental credit to NBFCs and HFCs after 19th October 2018 could be treated as high-quality liquid assets for calculation of liquidity coverage ratios.
- NBFCs with assets over Rs. 5,000 crore have been asked to appoint a Chief Risk Officer to improve the standards of risk management.