solution, therefore, from a regulatory perspective, would be the one in which the nbfcs do not undertake any activity other than financial activities on the same lines as banks are permitted to undertake only those activities which are enumerated in section 6 of the banking regulation act, 1949. however, that is not possible for the nbfc sector given the structure of the sector. as ensuring 100 percent financial activity is not feasible, the next best alternative would be to raise the threshold for principal business. accordingly, the threshold has been raised from 50 percent to 75 percent of total assets / income, to ensure that the regulation focuses on predominantly financial entities. however, raising the threshold could result in keeping out of purview of regulations, certain non banking financial entities having financial activities of significant scale which could adversely impact financial stability. this could happen in the following two situations : • the financial activities of these entities are a significant proportion of the total activities and of significant magnitude ; and • the financial activities of these entities are not a significant proportion of total activities but are of large magnitude. to cover ( a ) above, the definition of principal business has been expanded to cover those non - bank financial entities whose financial assets or income from financial assets are 50 percent or more of total assets or gross income respectively and total assets are ₹. 10 billion or more. however, entities covered by ( b ) cannot be possibly subjected to entity specific regulation as the scale of non financial activities would be much larger than that of financial activities. regulatory approach in such a situation will have to evolve over time. one approach could be to subject their financial activities to prudential regulations for those activities. the other alternative would be, as envisaged in fsb ’ s approach, to build up a data base, identify vulnerabilities, and take suitable regulatory action where vulnerabilities could acquire systemic proportions. exemption from requirement of registration : in formulating the threshold for registration of nbfcs, we were guided by considerations of conserving limited regulatory resources and issues of materiality of the risk profile of nbfcs. accordingly, we have proposed to exempt two categories of nbfcs from registration – one, all non - deposit taking nbfcs with asset size below ₹. 0. 25 billion and two, nbfcs with asset size below ₹. 5 billion and not accessing public funds. these nbfcs would also be exempt from regulation. small nbfcs having asset size of

securitization – ( iosco and bcbs ) ; and • to dampen risks and pro - cyclical incentives associated with secured financing contracts such as repos, and securities lending that may exacerbate funding strains in times of “ runs ” – ( fsb sub group ). the policy recommendations have been guided by the following five general principles for regulatory measures : • focus : regulatory measures should be carefully designed to target the externalities and risks the shadow banking system creates ; • proportionality : regulatory measures should be proportionate to the risks shadow banking poses to the financial system ; • forward - looking and adaptable : regulatory measures should be forward - looking and adaptable to emerging risks ; • effectiveness : regulatory measures should be designed and implemented in an effective manner, balancing the need for international consistency to address common risks and to avoid creating cross - border arbitrage opportunities against the need to take due account of differences between financial structures and systems across jurisdictions ; and • assessment and review : regulators should regularly assess the effectiveness of their regulatory measures after implementation and make adjustments to improve them as necessary in the light of experience. size of the shadow banking sector efficient oversight of any sector requires monitoring which involves data collection and analysis. given its growing significance, monitoring of the global shadow banking system is being very vigorously pursued. the fsb committed to conducting annual monitoring exercises to assess global trends and risks in the shadow banking system through its standing committee on assessment of vulnerabilities ( scav ) and its technical working group, the analytical group on vulnerabilities ( agv ), using quantitative and qualitative information. the fsb ’ s second annual monitoring exercise, which was recently concluded, covered 25 jurisdictions and the euro area as a whole, thereby bringing the coverage of the monitoring exercise to 86 per cent of global gdp and 90 per cent of global financial system assets. the primary focus of the exercise was on a “ macro - mapping ” based on national flow of funds and sector balance sheet data, that looks at all non - bank financial intermediation to ensure that data gathering and surveillance cover the areas where shadow banking - related risks to the financial system might potentially arise. the main findings from the 2012 exercise are as follows : • according to the “ macro - mapping ” measure, the global shadow banking system, as conservatively proxied by “ other financial intermediaries ” grew rapidly before the crisis, rising from usd 26 trillion in 2002 to usd 62 trillion in 2007.