NBFCs must be under RBI watch: Subbarao

As per Reserve Bank of India (RBI) Governor D. Subbarao, banking as well as Non-Banking Financial Companies (NBFCs) must be under a unified regulation of the central bank to prevent 2008 like crisis.

He said that there were strong inter-linkages between Banks and Non-Banking Financial Companies (NBFCs) and suggested that a unified regulation by the same regulator was essential for financial stability.

What is the need to include NBFCs under unified regulation?

The government has plans to take away the regulation of NBFCs from the central bank and put it under a unified financial authority. As per RBI, such a move would prove detrimental to financial stability. It said that for the Monetary Policy to be effective the credit creation (that is by banks and credit institutions such as NBFCs) should be regulated by the central bank. it pointed that the major reason behind the 2008 crisis was credit intermediation activities conducted by non-banks which were mainly outside the regulatory purview so post crisis the trend has been to entrust more, not less, regulation by central banks.

Month: Current Affairs - August, 2013