Reserve Bank of India (RBI) Deputy Governor M Rajeshwar Rao on Friday said non-banking financial companies (NBFCs) with significant externalities and which contribute substantially to systemic risks must be identified and subjected to a higher degree of regulation.
Addressing a summit on NBFCs organised by Assocham, he said one can also argue that the design of prudential regulatory framework for such NBFCs can be comparable with banks so that beyond a point of criticality to systemic risks, such NBFC should have incentives either to convert into a commercial bank or scale down its network externalities within the financial system.
“This would make the financial sector sound and resilient while allowing a majority of NBFCs to continue under the regulation-light structure,” Rao further said.
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