NBFC Current Affairs - 2019

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RBI to create a ‘Specialised Supervisory and Regulatory Cadre’

The Reserve Bank of India’s (RBI’s) Central Board has decided to create a ‘Specialised Supervisory and Regulatory Cadre’ within the RBI.

Key Highlights

About: The decision to create a Specialised Supervisory and Regulatory Cadre within the RBI was taken at the recent two-day meeting of Reserve Bank of India’s (RBI’s) Central Board which was held under the chairmanship of RBI Governor Shaktikanta Das in Chennai. This was the boards 576th Meeting.

Objective: The cadre creation came with a view of strengthening the supervision and regulation of commercial banks, urban cooperative banks and Non-Banking Financial Companies (NBFCs).

Importance: The decision for creating an additional oversight mechanism was taken in the wake of recent NBFC crisis such as large-scale defaults by IL&FS in 2018 (which caused on-going liquidity crunch in banking system), failures by credit rating agencies to flag risks, alleged lapses by auditors and divergence in asset quality by big banks. Thus the supervision cadre would supplement RBI to be better equipped in picking up early warning signs.

Key Discussions at RBI’s Central Board Meeting

  • It reviewed the current economic situation, global and domestic challenges and various areas of operations of RBI.
  • It reviewed the present structure of supervision in RBI in light of growing complexities, diversity and interconnections within the Indian financial sector.
  • It also discussed issues related to currency management and Banker to Government functions of the RBI.
  • It also discussed the Medium Term Strategy document, which covers RBI’s Mission and Vision Statements.

Month: Categories: Business, Economy & Banking

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RBI to regulate peer-to-peer lending firms as NBFCs: Government

The Union Government has issued gazette notification, notifying that Peer-to-peer lending (P2P) platforms will be treated as non-banking financial companies (NBFCs) and thus regulated by Reserve Bank of India (RBI).

The notification will help P2P lenders to gain official recognition and opens new avenues for fund-raising and business expansion. It also ends the regulatory vacuum in which P2P lending firms were operating.

Background

The RBI had floated a consultation paper in April 2016 on developing regulatory norms for P2P lending. It had proposed 6 key areas to frame regulatory framework encompassing permitted activity, regulations on capital, governance, business continuity plan and customer interface and regulatory reporting of P2P lending.

Peer-To-Peer Lending (P2P)

P2P lending is a form of crowd-funding used to raise loans which are paid back with interest. It enables individuals to borrow and lend money – without use of an official financial institution as an intermediary. It can use an online platform that matches lenders with borrowers in order to provide unsecured loans. P2P lending gives access to credit to borrowers who are unable to get it through traditional financial institution. It boosts returns for individuals who supply capital and reduces interest rates for those who use it.

Need

P2P lending is one of the crowd-funding business model that has gathered momentum globally and is taking root in India. It promotes alternative forms of finance, where formal finance is unable to reach. It has potential to soften lending rates as result of lower operational costs and enhanced competition with traditional lending channels. If properly regulated, P2P lending platforms can do this more effectively. Though it is in nascent stage but it is not significant in value yet, but it promises potential benefits to various stakeholders (borrowers, lenders, agencies etc).

Month: Categories: Business, Economy & Banking

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