Reserve Bank of India likely to propose stricter rules for shadow banks: Sources


NEW DELHI/MUMBAI: The Reserve
Bank of
India is
likely
to
propose
stricter regulatory norms
for
shadow
banks in a bid
to strengthen solvency and sustainability of a sector that has been showing signs of stress in recent years, two sources said.

RBI began trying
to move towards tighter norms
for the sector after Infrastructure Leasing & Financial Services, the largest NBFC, went bankrupt in 2018, and Dewan Housing Finance Corp and Altico Capital defaulted on payments in 2019.

The RBI is expected
to set out its proposals in a discussion paper next week and recommend that bigger non-banking finance companies (NBFCs), or
shadow
banks, maintain a statutory liquidity ratio (SLR), the sources said.

Neither officials wished
to be named as the discussions on the proposals have not been made public.

Currently,
banks are mandated
to maintain SLR or the minimum percentage of deposits that they must hold in the form of liquid cash, gold or government securities at 18%.

The RBI could also suggest large NBFCs be required maintain a cash reserve ratio. CRR currently stands at 3%, below the usual 4% level, after a temporary reduction by RBI due
to the ongoing pandemic that will be reversed after March 31.

“As a security,
to ensure sustainability and also
to ensure liquidity
for NBFCs, SLR and other steps, like CRR are being contemplated,” one of the officials said.

The move could be a huge cash drain
for the sector which is currently free from maintaining these reserve ratios, which allows them
to give loans
to sub prime lenders as well.

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The proposal, however, is expected
to recommend a phased implementation of the reserve ratios, ensuring NBFCs are given time
to adhere
to the norms, the official said.

“Cost of compliance
to
rules and regulations should be perceived as an investment as any inadequacy in this regard will prove
to be detrimental,” RBI Governor Shaktikanta Das said in a speech on Saturday referring
to increased regulation in recent years
for
banks and
shadow
banks.





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