RBI Deputy Governor Criticizes NBFC Demands, Warns P2P Lenders
By : Falaknaaz Syed
Update: 2024-02-09 16:18 GMT
Mumbai: The Reserve Bank of India (RBI) deputy governor M Rajeshwar Rao on Friday criticised the frequent demands from Non-Banking Finance Companies (NBFC) to convert into a bank or their demands to be allowed to accept public deposits.
Speaking at the CII NBFC Summit, Rao clarified that the regulations for even entities in the top-most tier of NBFCs are not at par with universal banks, and that NBFCs enjoy much more leeway. He gave the example of minimum initial capital requirement for a universal bank which is Rs 1000 crore vis-à-vis Rs 10 crore for an NBFC, banks are
required to deploy minimum 40 per cent of their loans towards priority sector lending while there is no such requirements for NBFCs. On the same lines, the scrutiny for a banking license applicant is much more rigorous than the scrutiny for an NBFC license applicant primarily to reflect the access of public deposits through a bank license.
“To provide a perspective, it may perhaps be pertinent to mention here that RBI has provided certificate of registration to 447 NBFCs over the last five years whereas no universal bank license has been given and only 2 small finance banks have been given licenses during this period,” remarked Rao.
“The NBFCs have evolved as niche companies serving specific economic functions and it is uncharacteristic for them to demand becoming like a bank.”
He said that it is indeed the non-acceptance of public deposits by the NBFCs which provides the regulatory comfort to the central bank to have lower entry barriers for NBFCs, allowing them to specialise in any specific sector of their choice and having lower exit barriers to wind up their businesses.
Considering these factors, the RBI’s approach has been to disincentivise deposit-taking activities of NBFCs as a result of which the number of deposit-taking NBFCs fell from over 241 in March 2014 to 26 in September 2023.
Rao also warned NBFC-P2P lenders breaching the licensing conditions by promising high/ assured returns, structuring the transactions, providing anytime fund recall facilities, etc. “Let me make it absolutely clear that any breach of licensing conditions and regulatory guidelines is non-acceptable,” Rao said.
Rao also criticised the microfinance companies for charging high interest rates, stating that RBI is “not oblivious” to such practices.
Speaking at the CII NBFC Summit, Rao clarified that the regulations for even entities in the top-most tier of NBFCs are not at par with universal banks, and that NBFCs enjoy much more leeway. He gave the example of minimum initial capital requirement for a universal bank which is Rs 1000 crore vis-à-vis Rs 10 crore for an NBFC, banks are
required to deploy minimum 40 per cent of their loans towards priority sector lending while there is no such requirements for NBFCs. On the same lines, the scrutiny for a banking license applicant is much more rigorous than the scrutiny for an NBFC license applicant primarily to reflect the access of public deposits through a bank license.
“To provide a perspective, it may perhaps be pertinent to mention here that RBI has provided certificate of registration to 447 NBFCs over the last five years whereas no universal bank license has been given and only 2 small finance banks have been given licenses during this period,” remarked Rao.
“The NBFCs have evolved as niche companies serving specific economic functions and it is uncharacteristic for them to demand becoming like a bank.”
He said that it is indeed the non-acceptance of public deposits by the NBFCs which provides the regulatory comfort to the central bank to have lower entry barriers for NBFCs, allowing them to specialise in any specific sector of their choice and having lower exit barriers to wind up their businesses.
Considering these factors, the RBI’s approach has been to disincentivise deposit-taking activities of NBFCs as a result of which the number of deposit-taking NBFCs fell from over 241 in March 2014 to 26 in September 2023.
Rao also warned NBFC-P2P lenders breaching the licensing conditions by promising high/ assured returns, structuring the transactions, providing anytime fund recall facilities, etc. “Let me make it absolutely clear that any breach of licensing conditions and regulatory guidelines is non-acceptable,” Rao said.
Rao also criticised the microfinance companies for charging high interest rates, stating that RBI is “not oblivious” to such practices.