SUPERVISION OF NBFC’S
NON BANKING FINANCE • NBFIs have an important role to play in financial and economic developm ent of a country. • International experience with gover nment sponsored entities or rules go es to show that it is not clear that the solution is always better than the problem.
NON BANKING FINANCE • The Government has to consider various issues like Not en ough financing for a sector? Housi ng? Agriculture? Others? Are interest rates too high ? Etc. However, under negative (or positi ve) externalities, private decisions of an organization
NON BANKING FINANCE • provide less (or more) than the soci ally desirable outcome of a service. • Therefore, regulation by the Government is mo st essential so that the NBFI does n ot overlook its importance and the necessity of fulfi lling its social objectives
NON BANKING FINANCE • NBFIs can be popular vehicles f or money laundering and financi ng of terrorism and hence the need for regulation o n that front is in place.
SUPERVISION OF NBFC Supervision of NBFCs by Reserve Bank The supervisory framework for NBFCs is based on three criteria, viz., (a) the size of NBFC, (b) the type of activity performed, and (c) the acceptance or otherwise of public deposits.
SUPERVISION OF NBFC • Towards this end, a four pronged supervisory strategy compr ising • Onsite inspection based on CAMELS (capital, assets, management, earni ngs, liquidity, systems and procedures) methodology,
SUPERVISION OF NBFC • computerized offsite surveillance throu gh periodic control returns, • an effective market intelligence networ k and • a system of submission of exception rep orts by auditors of NBFCs, has been put in place.
SUPERVISION OF NBFC • Companies not holding or accepting pu blic deposits are regulated and supervi sed in a limited manner. • They are required to comply only with prudential norms relating to income recognition, accounting standards, ass et classification and provisioning again st bad and doubtful debts.
SUPERVISION OF NBFC They are less frequently inspected. Su ch companies are now required to submit a monthly return to the Reser ve Bank