chasing the horizon - remarks delivered by shri m. rajeshwar rao, deputy governor, reserve bank of india at the cii nbfc summit on role of nbfcs in achieving $ 5 trillion economy on october 22, 2021 1 ladies and gentlemen! 1. it ’ s a pleasure to be with you this morning. let me thank mr. chandrajit banerjee, director general, cii for extending this kind invitation to me for delivering this inaugural talk at the summit organised by cii. nbfc sector has received wide ranging attention for past few years for various reasons. as an important cog of the financial system, it holds immense potential with its ability to reach out to vast cross - section of the population and diverse geographies and my focus today is going to be outlining a path for achieving this potential. 2. as many of you might recall, almost a year back in the national e - summit on nonbanking financial companies organised by assocham, i dwelt upon how the regulations for nbfc sector might shape up in future. the year has passed by and i would like to think we have made significant progress in many of those areas. one important point that we had highlighted back then was the principle of proportionality for regulating the non - banking financial entities. the idea was to calibrate the degree of regulatory prescriptions based on the systemic importance of nbfcs and the contagion risk they pose to other entities in the financial system. to give shape to our principle of proportionality idea, we came out with the discussion paper on revised regulatory framework for nbfcs - a scale - based approach in january this year for stakeholder comments. we have received and examined these comments internally and i plan to discuss on the approach a bit later in my talk. 3. in today ’ s talk, i would like to focus on three key aspects. first, the uniqueness of non - banking financial sector and its importance in the overall scheme of things for development of the country ; second, discuss a bit on the scale based regulations as remarks delivered by shri m. rajeshwar rao, deputy governor, reserve bank of india at the virtual cii nbfc summit on role of nbfcs in achieving $ 5 trillion economy - october 22, 2021. the inputs provided by shri chandan kumar and pradeep kumar are gratefully acknowledged. 1 | page the way forward for regulatory landscape of nbfc sector.

while not unique, it sets australia apart from financial systems in many other economies. r e s e r v e b a n k o f au s t r a l i a one consequence of this is that australian borrowers are exposed to considerable interest rate risk. indeed, mortgage arrears rates in australia are trending up following the large rise in required mortgage payments. even so, arrears rates here remain low and are at similar levels to those in economies with much more fixed - rate lending. this outcome reflects several features of the australian mortgage market that collectively leave most borrowers with buffers that help them to manage through a period of higher interest rates. that has been the case through the recent episode, although many borrowers have struggled in the face of rising interest rates over the past two years or so, and household spending more broadly has weakened noticeably. this influence of monetary policy on the cash flows and behaviour of variable rate borrowers receives a lot of attention in australia. however, this is only one of the channels of monetary policy and there is no evidence that monetary policy overall is more potent in australia than in other advanced economies. further study on the efficacy of these different channels, particularly cross - country comparisons, is an interesting area for further research. outside the pandemic episode, the rba has tended to provide forward guidance that is more infrequent, short - term and qualitative than many other central banks. i have outlined some of the arguments for this, but i think it would be worth reviewing the rba ’ s approach to forward guidance from time to time, including to consider other ways that the rba might clarify the nature of its reaction function. any such reviews should carefully account for features of australia ’ s financial system that set it apart from other economies. finally, it also bears repeating that all advanced economy central banks provide extensive information about the economic outlook and their reaction functions that guide the public and markets to form views about the future path of monetary policy. central banks may be more or less explicit about that guidance, but as is the case with the aggregate transmission of monetary policy, while the internal mechanisms might differ, the overall effect can be quite similar. endnotes * i thank matt gibson, peter wallis, dominique d ’ netto, david meredith, hebe williams and sharon lai for help in preparing this speech, and numerous rba staff for helpful comments and suggestions. the views are my own and not necessarily those of the rb