R Gandhi: Re-designing regulatory framework for NBFCs
Speech by Mr R Gandhi, Deputy Governor of the Reserve Bank of India, at the
110th Foundation Day Celebrations of City Union Bank, Chennai, 23 November 2014.
* * *
Assistance provided by Ms Archana Mangalagiri is gratefully acknowledged.
1. The Non-Banking Finance Companies (NBFCs) in India, have evolved over the last
fifty years to emerge as notable alternate sources of credit intermediation. The non-bank
sector in India is wide and encompasses several financial intermediaries like the loan and
investment companies, housing finance companies, the infrastructure finance companies,
the asset finance companies, core investment companies, micro finance companies and
factoring companies. In a broader sense, the NBFCs include stock brokers, insurance
companies, chit fund companies, etc. The NBFCs are also into distribution of financial
products, acting as Business Correspondents to banks, and facilitating remittances. The
NBFC sector regulated by the Reserve Bank has changed dynamically since the time an
enhanced regulatory framework was placed on them in 1996 in the wake of failure of a large
sized NBFC. The changes in the sector have partly been regulation induced; the prudential
regulations on systemically important NBFCs and deposit taking NBFCs made them
financially sound and better managed, while the light touch regulation on them gave them
ample head room to be innovative, and dynamic. Today, while the numbers of registered
NBFCs have come down, from the peak of 14,077 in 2002 to 12,029 by March 2014, those in
the business found a niche for themselves, in the financial fabric of the country.
2. In a country like India where large sections of the population are still unbanked,
there is space for several forms of financial intermediation. Without sounding clichéd, I would
say, the NBFCs have emerged as a very important and significant segment, financing small
and medium enterprises, second hand vehicles, and other productive sectors of the economy
and have very effectively tried to bridge the gaps in credit intermediation. They have played a
supplementary role to banks in financial intermediation and a complimentary role in the
financial inclusion agenda of the Reserve Bank. NBFCs bring the much needed diversity to
the financial sector thereby diversifying the risks, increasing liquidity in the markets thereby
promoting financial stability and bringing efficiencies to the financial sector.
3. Although regulated, NBFCs sector is considered as the shadow banking sector. This
is because they are lightly regulated, there are pockets within the sector that are not
subjected to regulation and or supervision and they are also allowed to conduct activities that
may not fall under regulation. I am referring to the Principal Business Criteria (PBC) for
registration which allows NBFCs the freedom to conduct other activities, beyond financial
activities, from their balance sheets. There are several large entities, undertaking financial
business, but do not come within the definition of the NBFC. Here, I am referring to several
corporate treasuries. Examples of light touch regulation are as follows: The registered
NBFCs are not supervised as intensively as banks; the reporting requirements are very little
as compared to banks; capital and other prudential requirements on banks based on Basle III
have not been required of the NBFCs; there are no or less pre-emptions in the form of CRR
or SLR for NBFCs; nor is prescription of priority sector lending requirements; Unlike banks,
there are no restrictions on the number of NBFCs that can be set up by a single Group nor is
there any restriction on the number of branches of NBFCs; and corporate governance
guidelines have not been as stringent as that for banks. There are also no regulations on
connected lending for NBFCs.
4. NBFCs today have grown considerably in size, form and complexity and operations
in a variety of market products and instruments, technological sophistication, entry into areas
such as payment systems, capital markets, derivatives and structured products. Some of the
NBFCs are operating as conglomerates having business interests spread to sectors like
insurance, broking, mutual fund and real estate. The inter-connectedness with other financial
intermediaries has increased with increased access to public funds through NCDs, CPs,
borrowings from banks and financial institutions. NBFCs being financial entities are exposed
to risks arising out of counterparty failures, funding and asset concentration, interest rate
movements and risks pertaining to liquidity and solvency. Risks of the NBFCs sector can
hence be easily transmitted to the financial sector or the NBFCs can get affected by adverse
developments in the financial sector. We can easily draw reference to the 2008 financial
crisis when the NBFCs sector came under pressure due to the funding inter-linkages
between NBFCs and Mutual Funds. The ripple effects of the turmoil in the Western
economies led to liquidity issues and redemption pressures on Mutual funds which in turn led
to funding issues for NBFCs as Mutual Funds were unable to roll over the corporate debt
papers of NBFCs. Many had to downsize their balance sheets or enter into distressed sale of
their loan portfolios. A slew of measures had to be taken then, both conventional and
unconventional to assist the NBFCs.
Evolution of Regulation
5. Regulation has generally kept pace with the dynamism displayed by the sector.
Historically, more specifically from the 1960s, some form of regulation existed on deposit
acceptance by NBFCs. However, regulation was tightened after 1996, with amendments to
the RBI Act, by placing entry point norms and stricter and more detailed regulations on
manner, form and quantum of deposit acceptance. Further, in 1999 capital requirement for
fresh registration was enhanced from ₹25 lakh to ₹200 lakh. When the regulatory gaps and
arbitrage between banks and NBFCs became significant in 2006, they were sought to be
bridged by identification of systemically important non-deposit accepting NBFCs and placing
prudential regulations on such NBFCs. At the same time, NBFCs were allowed to expand
their activities to offering newer products and services.
Need for Revisions to Regulations
6. Consider some of the data that is available with the Reserve Bank1. The total
number of NBFCs as on March 31, 2014 were 12,029 of which deposit taking NBFCs were
241 and non-deposit taking NBFCs with asset size of ₹100 crore and above were 465,
nondeposit taking NBFCs with asset size between ₹50 crore and ₹100 crore were 314 and those
with asset size less than ₹50 crore were 11,009. The total assets of the reporting NBFCs
have grown phenomenally over the last few years. These assets which stood at ₹5,60,035
crore as at end March 2009, grew to ₹14,41,422 crore as at end March 2014. In the last
year, the total assets of the NBFC sector have grown by 13.36%, while the assets of the
banking sector have increased by 5.36% for the corresponding period. The Return on Assets
(ROA) as on March 2014 in case of NBFCs was on an average 2.4%, while the ROA for
Scheduled Commercial Banks was 0.8%. Return on Equity (ROE) for NBFC in March 2014
was 12% as compared to 9.5% for scheduled commercial banks. The trend in the important
financial ratios for NBFCs-ND-SI and NBFCs-D is given in the tables below:
7. Sources of funds have also increased. The total borrowings by the reporting NBFCs
grew from ₹3,75,072 crore as at end March 2009 to ₹9,98,379 crore as at end March 2014.
There has been sizable growth, very high leverage, increasing dependence on public funding
and increasing interconnectedness, while the regulations on NBFCs are lighter than that for
the rest of the financial sector.
8. There was therefore a need felt to comprehensively review the regulatory framework
for NBFCs. Several Committees both internal and external have made significant
recommendations. I am referring to the Working Group Report on the Issues and Concerns
in the NBFC Sector chaired by Smt. Usha Thorat ex -Deputy Governor of the Reserve Bank
and in which there were participants from the industry as well. The Nachiket Mor Committee
on Comprehensive Financial Services for Small Business and Low Income Households had
also several recommendations for the NBFC sector. The revised regulatory framework has
drawn significantly from these studies. While reviewing the recommendations for adoption,
the Bank has been mindful of the fact that the revisions should not impede the dynamism
displayed by NBFCs in delivering innovation and last mile connectivity for meeting the credit
needs of the productive sectors of the economy.
Recent Revisions to Regulatory Framework
9. The broad principles followed in framing the revised guidelines was to review the
regulations from the perspective of the mandate of the Reserve Bank, viz., financial stability,
depositor protection and customer protection. Hence, a) the focus has been on addressing
risks where they exist, b) address gaps in regulation, c) reduce complexities and make
regulations simple and easy to follow, d) harmonise regulations within the sector and with
that of banks to a limited extent, e) acknowledge that there may be pockets within the sector
that do not require to be stringently regulated and f) give adequate time to the NBFCs to
adjust to the revised regulatory framework so that there are no disruptions in business.
10. Out of the 12,029 NBFCs registered with us, only 241 are deposit taking. Out of the
remaining 11,788 non - deposit taking NBFCs, there are many NBFCs who do not access
public funds and so are not interlinked. These do not pose much risk to financial stability.
Hence, a simplified regulatory framework will suit them.
11. Today, there are various types of NBFCs and regulation varies depending on the
type of NBFCs. This has unnecessarily complicated the structure. As a precursor to let
NBFCs undertake any of the permitted activities, than be constrained by the specific
segment of registered activity, we thought it fit first to harmonise the regulations among
various types of NBFCs so that no regulatory arbitrage will be possible. Thus harmonisation
with banks has also been warranted for those NBFCs which are in good competition with
banks.
12. Thus the approach for redesigning the regulation has been "a lighter regulatory
framework on NBFCs other than for those with large asset sizes and deposit accepting,
harmonisation of regulation across various types of NBFCs, harmonisation with that of banks
to some extent for NBFCs with large asset sizes, and for all deposit accepting NBFCs,
creating a level playing field that does not unduly favour or disfavour any institution and to
provide adequate time to manage transition". Let me now explain the changes in more detail.
Harmonising Minimum Capital Requirement
13. Harmonising the minimum capital requirement for all NBFCs at ₹200 lakh. The
minimum capital requirement of ₹200 lakh was set in from April 1999. However, there are
several thousand legacy NBFCs registered prior to this date, the capital of which is below
this level. With the changed profile of NBFCs, their entry into newer businesses, the capital
of ₹200 lakh in itself is grossly inadequate. The general increase in the price level since 1999
by itself would call for an increase in the capital requirements necessary to function as
NBFCs. Besides, as the Usha Thorat Committee has pointed out that any financial
intermediary must necessarily invest in technology to be efficient and competitive and reap
economies of scale, all of which requires enhancement of capital. A higher capital
requirement also ensures that serious players enter this space. Besides, registration with the
Bank confers a legitimacy to the NBFC as a regulated entity and gives a sense of comfort to
the lenders to the NBFCs. It is therefore necessary to begin by harmonising this level across
the sector. An easy to follow roadmap for compliance by March 2017 has been provided so
that NBFCs have the required time for planning capital augmentation. Needless to say,
noncompliance to the roadmap could invite adverse regulatory action.
Harmonising Deposit Acceptance Regulations
14. Deposit acceptance by NBFCs is a legacy activity and no new NBFC has been
given the licence to accept deposit since 1997. The stance of the Bank has been that deposit
acceptance will have to be a tightly regulated activity and banks are the right structure to
carry on that activity. Further given the absence of deposit insurance and an institutional
complaint redress mechanism for the NBFC sector, the Reserve Bank is not in favour of
allowing NBFCs to accept deposits. Total deposits held by NBFCs amount to ₹20,588 crore
as on March 31, 2014. Out of the 241 companies only 17 companies have deposits greater
than ₹10 crore. The trend in amount of deposit and deposit profile is given in the tables
below:
15. Within the sector itself deposit directions differ, with Asset Finance Companies
(AFCs) being allowed to accept deposits without the mandatory minimum investment grade
credit rating, and those that are rated and follow prudential norms can go up to 4 times of the
NOF in terms of quantum of deposits they can mobilise. This dispensation was given to
Asset Finance Companies as they were financing real productive assets, typically capital
equipment, commercial vehicles, tractors and automobiles. Many of these activities are now
also carried out by other NBFCs and the AFCs themselves have moved out of hire-purchase,
equipment leasing model of functioning. In such a scenario, there is no particular reason for
differential limits. Besides, as seen from the Regulatory Returns received from NBFCs, other
than a very few, the industry has not exceeded 1.5 times of NOF in deposit mobilisation. The
Bank hence has harmonised deposit acceptance regulations by making minimum investment
grade credit rating compulsory by March 2016 and aligning the quantum to industry levels at
1.5 times of NOF. For a smooth transition, deposits held by NBFCs-D in excess of the
revised limits will be allowed to run off on maturity.
Simplifying the Regulatory Framework
16. Regulation for the NBFC sector over the last decade and a half has been
incremental. As and when risks have been detected those were sought to be addressed.
This had created complexities in their application and consequently affected compliance
culture. There was therefore a need to review regulations comprehensively with the objective
of making them simple and easy to follow. Consequently, the revised regulatory framework
has brought about only two levels of regulation viz., for those above the systemically
important threshold and for those below. Regulation for NBFCs-D will be similar to those
applicable to systemically important NBFCs-ND, as protection of interest of depositors is one
of the mandates of the Reserve Bank. NBFCs-D will additionally have to follow the Direction
on deposit acceptance, as hitherto. As regards the Non-Deposit taking NBFCs which are not
systemically important, they will not be subjected to any regulation either prudential or
conduct of business regulations viz., Fair Practices Code (FPC), KYC, etc., if they have not
accessed any public funds and do not have a customer interface; those having customer
interface will be subjected only to conduct of business regulations including FPC, KYC etc., if
they are not accessing public funds; those accepting public funds will be subjected to limited
prudential regulations but not conduct of business regulations if they have no customer
interface; where both public funds are accepted and customer interface exist, such
companies will be subjected both to limited prudential regulations and conduct of business
regulations. However, registration under Section 45 IA of the RBI Act will be mandatory and
they will be subjected to a simplified reporting system.
17. It is worthwhile to note that out of the 12,029 NBFCs registered with the Reserve
Bank, as many as 11,598 will be regulated by this simplified regulatory framework.
Threshold for Systemic Significance
18. The Basel Committee on Banking Supervision and the Financial Stability Board, the
two international standards setting bodies, have defined what is a systemically important
financial institution (SIFI). They do not establish merely an asset size threshold for defining a
Systemically Important Financial Institution (SIFI). They have identified four major
parameters for assessing whether a financial institution is systemically important viz., its size,
its complexity, its interconnectedness, the lack of readily available substitutes for the financial
infrastructure it provides. Financial sector regulators in each jurisdiction are expected to
identify SIFIs within their jurisdiction and make suitable laws, regulations and rules that would
apply to those entities. The Financial Stability Board also describes G-SIFIs as financial
institutions whose distress or disorderly failure, because of their size, complexity and
systemic interconnectedness, would cause significant disruption to the wider financial system
and economic activity.
19. The SIFIs identified by the Reserve Bank in the non-banking space have been
based on the asset size, although they also meet the other parameters, including
substitutability factor. Nevertheless, ₹1 billion in asset size is considered too low from both
national and international standards.
20. Consequently, the threshold for systemic significance has been relooked at from the
perspective of the overall growth in the sector and international standards and a revised total
asset size of ₹500 crore has been put in place. With this redefinition, as mentioned earlier,
there are now only two broad categories of NBFCs and regulations accordingly applied.
These are:
i. non - deposit accepting NBFCs with asset size of less than ₹500 crore (NBFCs-ND)
and
ii. non - deposit accepting NBFCs with assets of ₹500 crore and above
(NBFCsND-SI) and deposit accepting NBFCs
21. There will consequently be as many as 11,598 NBFCs who will be subjected to the
simplified regulatory framework and only 190 NBFC-ND-SIs and 241 NBFC-Ds who will be
subjected to the enhanced regulatory framework.
22. Minimal prudential regulations are prescribed for non-deposit accepting NBFCs with
asset size of less than ₹500 crore. For these non-deposit accepting companies (NBFCs-ND)
below the threshold of systemic significance, prudential regulations, other than capital
adequacy and credit concentration norms, are applicable only where public funds are
accepted and conduct of business regulations (FPC, KYC) where there is customer interface.
A simple leverage ratio of 7 has been put in place so that their asset growth is in sync with
the capital they hold. Further, reporting by such NBFCs will be through a simplified annual
return. There have been concerns about non-systemically important NBFCs not being
subjected to any supervision and reporting requirements in the past. This is now sought to be
addressed by the revised reporting system for all NBFC-NDs and the supervisory
arrangements based on risk perception and in normal course so that the regulator is in the
know on the activities of smaller companies.
23. For those non-deposit accepting companies (NBFCs-ND-SI) above the threshold of
systemic significance and for all NBFC-D, prudential regulations are applicable and conduct
of business regulations wherever customer interface exists. In line with international best
practices, core capital requirement has been strengthened (existing 7.5%; raised to 10% to
be phased over 2 years). The minimum Tier 1 capital requirement for NBFCs primarily
engaged in lending against gold jewellery remains unchanged for the present and will be
reviewed for harmonization in due course.
24. Asset Classification norms have been aligned with that of banks (from the current
180 day and 360 day norm for loan and HP/Leased assets respectively to a 90 day norm
phased in over 3 years). Higher standard asset provisioning has been put in place (0.4%
against the existing 0.25% phased in over 3 years). Further, credit concentration norms have
been harmonised between the various categories of NBFCs by removing the dispensation
given to AFCs to exceed the defined norms by 5%. (Dispensation given to IFCs and IDFs
has been retained as infra loans are high value loans) and corporate governance standards,
viz., fit and proper criteria for directors, disclosure and transparency have been strengthened
so that they are professionally managed and develop a sound compliance culture.
25. Assets of multiple NBFCs in a group shall be aggregated to determine if such
consolidation falls within the asset sizes of the two categories mentioned above. Regulations
as applicable to the two categories will be applicable to each of the NBFC-ND within the
group.
Revoking of temporary suspension of CoR
26. The regulatory framework for NBFCs was based on the provisions of the RBI Act
1934, as amended in 1997. Since then, several important developments warranted a major
shift in the regulatory paradigm for the NBFC sector. In the circumstances, a decision to
revamp the basic framework was taken. It was thought appropriate that no new NBFCs may
be registered when the regulatory framework is being overhauled and the grant of issue of
CoR was suspended on April 1, 2014. With the revised guidelines in place, the suspension
on new applications has been revoked simultaneously.
Relaxation in the factoring guidelines
27. Factoring companies were facing difficulties in meeting the Principal Business
Criteria (PBC) set down for them for the purpose of registration. Factors needed to ensure
that their financial assets in factoring business constitutes at least 75 per cent of its total
assets and income derived from factoring business is not less than 75 per cent of gross
income. The PBC was placed high to align with that of all specialized NBFCs, such as IFCs,
MFIs, etc. A number of representations were received from the industry requesting for
lowering the PBC especially in the initial teething phase. Consequently, and to provide
impetus to factoring, it was decided to make it easier for Factors to apply for registration by
lowering the PBC. Existing companies can now seek registration if their financial assets in
the factoring business constitute at least 50 per cent of its total assets and income derived
from factoring business is not less than 50 per cent of its gross income. Several statutory
amendments are required to the Factoring Act, 2011 which the Reserve Bank is separately
taking up with the Government of India.
Feedback on the framework
28. The revised regulatory framework has been generally received positively by the
market. As somebody put it, given the context of high anxiety levels, these guidelines came
as "polite regulatory action". There could be short term impact on the profitability due to
increased provisioning and on account of the revised asset classification norms, but the
phased introduction of these norms is likely to cushion any adverse impact on the NBFCs.
Besides, the strengthening of governance standards and disclosures will enhance
shareholder and investor confidence. NBFCs already hold a high Tier 1 capital, and hence
there is likely to be no material impact on them.
29. There have been some apprehensions expressed in the media pertaining
specifically to the asset classification norms being aligned with that of banks, a higher
standard asset provisioning requirement and the reduction in the quantum of deposits that
can be accepted by NBFCs. Media reports have stated that NBFCs catering to small
borrowers are likely to see a jump in gross NPAs and provisioning as they migrate to the 90
days norm by 2018, while restriction on accessing public deposits will narrow margins and
will adversely impact the profitability of the NBFCs.
30. Several representations that we have received are with regard to the issue of
aligning the asset classification norms with banks; if you all will recall, this has been the focus
of the Reserve Bank for several years and has also been the recommendation of several
Committees. Certain uninformed campaign has been spreading a fear that this regulation will
lead to increase in the borrowing cost for borrowers of NBFCs and it will lead to recall of
loans, repossession of the assets, etc. These fears are all baseless. What are we telling the
NBFCs? We are saying that you be truthful, when you prepare your balance sheets. If a loan
is non-performing i.e. if an instalment or interest payment is not received even after a
reasonable period after the due date, you cannot recognise income out of that loan. Thus,
what we are bringing is an accounting discipline, so that all stakeholders know the real
financial position of an NBFC. Be it the depositor who keeps a deposit with an NBFC or be it
an investor or prospective investor of the NBFC when it raises funds from the market, or be it
a bank which finances an NBFC, all of them need to know the real financial position of the
NBFC's assets. These IRAC norms i.e. the Income Recognition and Asset Classification
norms are thus an accounting requirement; these in no way curtail the NBFCs' right to
extend further/adequate time to the borrowers who are viable. These norms do not require
that these loans/assets classified as NPAs should be recalled or repossessed. That is a call
the NBFCs will take, based on their assessment about the possibility of repayment, and the
probability of default, not on the mere fact that these are classified as NPAs.
31. I understand that several members of the industry have already factored these
changes and suitably, that too voluntarily, moved towards a 150 days or a 120 days asset
classification norm. Also it may be borne in mind that the revised rules have been made
applicable to only systemically important NBFCs, that too as per the new definition and for
deposit accepting NBFCs in line with the Bank's mandate of financial stability and depositor
protection. Besides, ample time of 3 years has been given for compliance, which is likely to
cushion impact on profitability. As on date, as I said earlier, out of the total 12,029 registered
NBFCs, only 190 NBFCs which are systemically important, non-deposit taking NBFCS and
only 241 deposit taking NBFCs will be required to comply with these requirements.
32. On reduction in deposit acceptance, I would like to clarify that these have not been
reduced but merely aligned to the industry practice. Regulations are framed taking into
account the practices in industry as a whole, not by the practices of outliers. Most NBFCs
have migrated to other forms of resource mobilisation. As per data available with us, only
5 deposit taking NBFCs may have to bring down their deposit level. All other 236 deposit
accepting NBFCs are already within the revised deposit acceptance threshold.
Way ahead
33. The above revised regulatory framework is the first step towards a vibrant
professionally managed and healthy NBFC sector. Much needs to be done and there is work
already in progress. These include migration to an activity based rather than entity based
regulation, comprehensive review of regulations placed on the NBFC-MFIs in the light of the
significant progress made by them post the AP crisis, a formal institutional framework for
grievance redress for the customers of the NBFCs and bringing the Government owned
NBFCs within the regulatory jurisdiction of the Bank. There are also several amendments to
the RBI Act, 1934, that need to be taken up with the Government in right earnest.
34. Another issue that need to be tackled is resource raising by NBFCs. Today
debentures and bank finance are the two main sources of funds for reporting NBFCs. The
Bank had in the past observed an unhealthy and sudden spurt in debenture issuances under
the private placement route. On-site inspections of the companies also showed that the
debentures were accepted on tap, the subscription amounts as low as in double digits,
passbooks and internal circulars of companies using the nomenclature of deposits, loans
being extended against the amounts received, debentures being issued to walk-in
customers, besides other features reflecting that the debentures were in effect surrogate
deposits. As NBFCs are to be accepting only wholesale funds, the Bank took action to
prevent retail participation by stipulating the minimum subscription amounts, the maximum
number of subscribers per issue, and preventing NBFCs from lending against the security of
their own debentures. This while curbing the undesirable practices, has constrained the
resource raising ability of NBFCs. With the revisions in the Companies Act on private
placements, the Bank is in the process of aligning largely the Bank's debenture regulations
with that of the Companies Act 2013.
Challenges for the regulator
35. The challenges faced by the regulator are many. First, there is a need to streamline
the sector, to bring within its fold entities that should have, but have not, sought registration
from the Bank. These have been identified and suitable corrective action is underway.
Second, it has come to the notice of the Bank that there are financial companies that have
been accepting deposits from the public without authorisation from the Bank. These again
have been identified and the respective State Governments are in the process of taking
suitable action under the State Protection of Interest of Depositors Acts. Third, the menace of
unincorporated entities and fly by night operators accepting deposits need to be addressed in
full earnest. The Bank is strengthening its Market Intelligence efforts and the inter-regulatory
coordination. The State level Coordination Committees (SLCCs), an inter-regulatory forum,
has been strengthened, with the Chief Secretaries presiding over the SLCCs, and the
frequency of such meetings has also been increased. The Bank is also examining the need
for a Residual Regulator which can address issues and products that are hybrid in nature
and do not strictly fall under any financial sector regulator. Some State Governments have
expressed the desire to act as Residual Regulator for the financial sector. This again, is work
in progress.
36. In keeping with the work done on Shadow Banking by G-20 and Financial Stability
Board, the Reserve Bank has been tasked with identification of shadow banking entities and
activities in the country, putting in place a data gathering mechanism to ascertain the
interconnectedness and the risks transmitted to the formal financial sector from shadow
banks. This is a humongous task, as today there is little data available on say Chit Funds,
both in the formal and informal sector, money lenders, and the like. An inter-regulatory group
consisting of financial sector regulators, enforcement agencies and the concerned
Government Ministries are engaged in this task.
Conclusion
37. In conclusion, may I emphasize that framing regulations is a public policy function
and it retains a long term perspective; though there may be some short term setbacks, the
revised prudential regulations as detailed so far, including the strengthening of core capital,
governance standards and disclosures, will strengthen the NBFC sector, make it more
resilient to economic downturns, lower systemic risks and enhance stakeholder confidence.
Overall the Reserve Bank is confident that the recent regulatory changes will have a salutary
effect on financial stability in the long run. It is hoped that these and other forthcoming
changes in the pipeline, will further strengthen the robustness of significantly important
NBFCs and allow them and other NBFCs to operate in an enabling regulatory environment.
38. Thank you.