The Reserve Bank of India has proposed tighter, bank-like regulation of the so-called shadow lending sector to prevent the turmoil caused by the collapse of an infrastructure financing firm in 2018.
The country’s central bank has gradually moved towards tighter norms for the sector ever since one of its biggest firms, Infrastructure Leasing & Financial Services,collapsed in late 2018 amid fraud allegations.
The RBI has proposed introducing a four-tiered structure for better regulation of NBFCs with about 25-30 of the nine thousand plus firms falling under the upper or second layer of the strictest regulations.
The large shadow banks are also expected to have a Common Equity Tier 1 capital of 9 per cent and to be subject to a differential provisioning requirement on their exposure, in line with banks.
The size of the balance sheet of shadow banks including housing finance companies has more than doubled to 49.22 trillion rupees in 2020 from 20.72 trillion rupees in 2015, the RBI said.