State the measures initiated by Reserve Bank of India to regulate credit disbursed by Non-Banking…

Question

State the measures initiated by Reserve Bank of India to regulate credit disbursed by Non-Banking Financial Institutions.

Ghissu Editorial · Accepted Answer

The 2019 RBI Act amendment let the RBI raise NBFCs' minimum net owned fund, supersede boards and direct resolution of stressed firms. It also added liquidity risk frameworks, raised risk weights on consumer credit to 125%, issued digital lending guidelines and required reporting to credit information companies.

**Introduction**

RBI’s regulation of NBFC credit is critical due to their growing role and risks exposed by crises like IL&FS, especially in ==Andhra Pradesh⟦2⟧⟦1⟧== where NBFCs support underserved sectors.

**Strengthening Regulatory Framework**

1. **Enhanced Supervisory Powers**: The amended RBI Act lets RBI raise minimum net owned funds for NBFCs from ₹2 crore up to ₹100 crore (now ₹10 crore under scale-based regulation) and remove directors, improving governance.  
2. **Group Audits and Penalties**: NBFCs must annex group financials and allow RBI inspections; RBI can impose penalties and direct resolution via amalgamation or reconstruction.

**Implementation Challenges and Sectoral Outcomes**

3. **Liquidity Risk Management⟦3⟧**: RBI’s liquidity risk frameworks for NBFCs over ₹100 crore assets improved resilience but posed compliance challenges for smaller NBFCs in ==Andhra Pradesh==.  
4. **Risk Weight Adjustments**: Raising risk weights on consumer credit to 125% curbed exuberance but affected NBFC lending dynamics.  
5. **Digital Lending Regulation**: RBI’s guidelines on digital lending platforms address mis-selling and unethical recovery, important for fintech NBFCs in ==Andhra Pradesh==.  
6. **Credit Information Transparency**: Mandatory reporting to credit information companies enhances credit risk evaluation, aiding MSMEs in ==Andhra Pradesh==.

**Way Forward**

7. **State-Level Coordination**: RBI should strengthen collaboration with ==Andhra Pradesh== regulators to monitor local NBFC credit flows.  
8. **Capacity Building**: Support for smaller NBFCs in compliance and risk management can improve stability without limiting credit.  
9. **Financial Literacy and Protection**: Expanding depositor education and grievance redressal in rural and semi-urban ==Andhra Pradesh== safeguards borrowers.  
10. **Technology for Supervision**: AI and data analytics can enable RBI’s real-time NBFC credit monitoring.

**Conclusion**

RBI’s reforms have strengthened NBFC oversight, balancing inclusion and stability, vital for MSMEs and retail borrowers in ==Andhra Pradesh== and supporting sustainable economic growth.

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