By Ankur Mishra
The Reserve Bank of India (RBI) on Friday announced a slew of measures for non-banking monetary firms (NBFCs) to improve resilience and increase their threat management systems. RBI governor Shaktikanta Das stated a scale-primarily based regulatory strategy linked to the systemic threat contribution of NBFCs could be the way forward.
“This regulatory regime based on the principle of proportionality warrants a review. It is felt that a scale-based regulatory approach linked to the systemic risk contribution of NBFCs could be the way forward,” Das stated. The RBI will situation a discussion paper just before January 15, 2021 for public comments, he added.
Anil Gupta, vice president, ICRA, stated like banks, this could involve extra regulatory filings at greater frequency by NBFCs to the RBI for helpful monitoring. “While this may increase compliance burden on larger NBFCs, it will be positive for systemic stability and also nudge larger NBFCs to convert to a bank.”
RBI governor named upon the monetary sector entities to give the highest priority to high quality of governance, threat management and internal controls as these are the 1st line of defence in matters associated to monetary sector stability. The RBI stated big NBFCs and urban cooperative banks (UCBs) will have to submit a threat-primarily based internal audit and a harmonised recommendations for appointing statutory auditors for industrial banks, UCBs and NBFCs with a view to increase the high quality of monetary reporting.
While the regulator directed banks not to make any dividend spend out from the income pertaining to monetary year 2019-20, it stated that a transparent criteria would be formulated for declaration of dividends by unique categories of NBFCs. Regarding the new dividend distribution policy for NBFCs, the RBI stated in contrast to banks, at the moment there are no recommendations in spot with regard to distribution of dividend by NBFCs. This has created it crucial to improve the resilience of NBFCs by placing in spot a transparent criteria according to a matrix of parameters for declaring dividends by unique categories of NBFCs, the regulator stated.
Speaking on the new dividend policy for NBFCs, Anil Gupta stated provided the uncertainty on the asset high quality, curtailment of dividend for banks is a good move from a capital conservation point of view. “Many larger NBFCs have continued to pay dividends in financial year (FY) 2021 from profits of FY 2019-20, despite some of them raising capital in FY2021,” he added.
RBI has also asked banks and co-operative banks not to make any dividends for the monetary year ended March 2020. In view of the ongoing anxiety and the heightened uncertainty on account of the pandemic, RBI stated it is crucial that banks continue to conserve capital to assistance the economy and absorb losses, if any.