Proposed Regulatory Framework for NBFCs

Non-Banking Finance Companies (NBFCs) in India have been playing a significant role in the Indian financial system. These entities have been bringing in more efficiency, inclusion and diversity into financial landscape of the country. NBFCs have also redesigned their operations, quality of asset and offerings, and risk management framework.

NBFCs have also noticeably enjoyed a more lenient and flexible regulatory framework as compared to banks, allowing them to operate more freely. Further, the Reserve Bank of India has time and again introduced regulations to improve the functioning of NBFCs and streamline the sector to a larger extent.

In this report, we’re summarizing the Reserve Bank of India’s discussion paper on ‘Revised Regulatory Framework for NBFCs – A Scale-Based Approach’ dated January 22, 2021. Through this discussion paper, the Bank has introduced a scalar-based approach to regulate Non-Banking Financial Companies in a more rationalized manner.