##bfcs have been increasingly playing a significant complementary role in financial intermediation and provision of last mile delivery of financial services. 6. non - banking financial entities, by their regulatory design, enjoy freedom to undertake a wider spectrum of activities as compared to banks for which the permissible activities are enshrined in the statute itself. this freedom, coupled with a light touch regulatory prescription, gives them a greater risk - taking capacity to engage in financial intermediation in the segments which are often underserved by other players. hence, even with large universal banking ’ s reach across the country, the nbfc sector has the ability to create a space for itself with customized services with a local feel. 7. apart from furthering the financial inclusion agenda, the added advantage of a well - functioning nbfc sector is that it can promote resilience in the financial system by being innovative and agile in offering tailored financial products and solutions as a supplemental source of credit alongside banks. it has to be noted that many recent financial sector credit delivery innovations, for example micro - credit and sachetisation of credit, were popularised by non - banking financial entities. this capability and freedom to innovate spurs competitive advantage in the financial services sector with the ultimate beneficiary in the process being the customer. 8. however, the reputation of non - banking financial sector has been dented in recent times by failure of certain entities due to idiosyncratic factors. the challenge therefore is to restore trust in the sector by ensuring that few entities or activities do not generate vulnerabilities which go undetected and create shocks and give rise to systemic risk through their interlinkages with the financial system. forestalling and where necessary, decisively resolving such episodes becomes a key focus of our regulatory and supervisory efforts. 3 | page scale based regulatory approach 9. before we discuss further, it would be interesting to make an assessment as to where the indian nbfc sector stands with respect to significance, activity and regulation as compared to global jurisdictions. the global monitoring report on nbfi by financial stability board ( fsb ) classifies non - banking financial activities into five economic functions, ( i ) collective investment vehicles, ( ii ) loan companies which depend on short - term funding, ( iii ) market intermediaries, ( iv ) entities which engage in facilitation of credit creation ( such as credit insurance companies, financial guarantors ) and ( v ),

of finance, but presided over by the governor, rbi. in conclusion, i would like to highlight three aspects of financial stability. first, we keep in mind our vulnerability to real sector shocks which would affect financial stability. the major sources of such shocks in india are very sharp rise in oil prices and extraordinary monsoon failures. second, we have political system stability in india though there have been coalition governments at the federal level. we are aware that most of the currency crises in developing countries occurred around the times of political elections, particularly in countries with the presidential form of government. our experience in india is that political cycles have had a relatively muted impact on financial stability. in any case, sociopolitical preference for greater financial stability needs to be appreciated and the weight accorded to financial stability in india appears to be higher than in some other countries. third, developing countries differ so much in size, nature and structure of the economy, level of development and sociopolitical conditions that my observations here are more of random thoughts to be mulled over rather than structured issues in respect of financial stability in developing countries. thank you.