RBI concept note on P2P lending to be shortly put up on website for public comments
Assocham held the 3rd National summit in Non-banking Finance companies (NBFCs) and how they are set to change the landscape of India’s banking sector. NBFCs have grown from 8.4% in 2006 to 14% in March 2015, a CAGR of 19%. This is due to their better product lines, lower cost, wide reach, strong risk management and their closeness to the customer. They form an integral part of the Indian Financial System as they have been providing credit to retail customers in the underserved and unbanked areas.
The event was inaugurated by Mr R. Gandhi, deputy governor, RBI who was very optimistic on the role of NBFCs. Speaking on the occasion he said “In order to improve ease of doing business and simplify the process of registration of new non-banking finance companies keeping in line with ‘Make in India’ and ‘Start Ups’. The number of documents required to be submitted will be reduced and the entire process could be made online for ease, speed and transparency.” He also said that RBI will soon put up a concept note on peer to peer lending (P2P) on its website for public comments and the contours of regulating P2P lending will be decided in consultation with markets regulator Securities Exchange Board of India (SEBI).
Highlighting that small NBFCs cannot be totally exempted from regulation, he said “They do deal with customers and customer protection issue will remain and that will need regulation, that is why we have simplified the regulatory framework for these small NBFCs.”
On the issue of allowing deposit taking activity of NBFCs, he said that it is a specious argument because maturity transformation automatically runs the risk of asset liability mismatches, and a non-bank runs a much higher liquidity risk, hence it will be prudent to let only banks accept deposits.
Mr Gandhi also said that NBFCs lending for infrastructure will have greater scope in coming years, as economic growth will bring forth new projects.
He cautioned that although NBFCs play an important role in financing the real economy, they are also a source of systemic risk especially when interconnected with the banking system.
On November 10, 2014, RBI released the revised regulatory framework 1 which is centred on the following objectives:
• Harmonising and simplifying regulations to make compliance easier;
• Focussing on activity based regulation without impeding those segments within the sector which do not pose any significant risks to the wider financial system;
• Addressing risks and regulatory gaps wherever they exist; and
• Strengthening the governance and disclosure standards.
The revised regulatory framework is applicable to all NBFCs except to NBFCs registered as primary dealers. With respect to Microfinance NBFCs and CICs, their extant regulations shall prevail wherever they are in conflict with the revised regulations. Under the revised regulatory framework, it has been stated that all NBFCs need to comply with the revised prudential norms, if applicable, in a phased manner in accordance with the prescribed timelines.
The Summit was held for the first time in Mumbai and the industry delegates was addressed by prominent leaders from the banking and finance sector.