The Reserve Bank of India (RBI) is reworking the regulations for housing finance companies (HFCs) and urban co-operative banks (UCBs) to improve governance, internal control mechanisms and put in place checks and balances in the system. “As HFCs now fall under the regulatory purview of the Reserve Bank, we are undertaking a review of extant regulations and are in the process of harmonising these regulations for HFCs with applicable regulations for NBFCs,” RBI Governor Shaktikanta Das has said.
“In the aftermath of the IL&FS crisis and subsequent defaults by a few companies, asset quality concerns have emerged, which imposes liquidity constraints on NBFCs. The Reserve Bank has been proactive in taking several measures to address these concerns and strengthen the regulatory and supervisory architecture of the NBFC sector, thereby ensuring that the sector remains stable and robust,” Das said at a function organised by Amrut Mody School of Management in Ahmedabad.
“We have attached considerable importance to make them resilient through harmonisation of regulations and a robust liquidity framework. RBI has come out with guidelines on liquidity risk management framework for NBFCs. Our objective is to ensure proper governance and risk management structures in NBFCs,” he added.
Das said the central bank is working with the government to amend the Act governing co-operative banks. “We have suggested several legislative changes to the central government for better regulation and supervision of UCBs. On our part, we are reviewing the existing architecture of regulation and supervision of UCBs and shall carry out necessary changes in sync with the evolving requirements.”
According to Das, going forward, UCBs are likely to increasingly face competition from players like small finance banks (SFBs), payments banks, non-banking finance companies (NBFCs) and micro-finance institutions (MFIs).
“It is, therefore, necessary for them to adopt robust technology to enable them to provide banking services at lower costs and with adequate safeguards. The Reserve Bank has been taking proactive steps to assist these institutions to adopt a robust IT infrastructure. The proposed national-level Umbrella Organisation (UO) is expected to provide liquidity and capital support to member co-operative banks, and will therefore contribute to the strength and vibrancy of the sector,” he said.
UCBs were brought under the ambit of the Banking Regulation (BR) Act, 1949 with effect from March 1, 1966. Certain provisions of the BR Act, however, were not made applicable to them, limiting the scope of regulation and supervision over them. “Broadly speaking, banking-related functions of co-operative banks are regulated by the Reserve Bank and management-related functions are controlled by the concerned state/central government,” Das said.
The RBI’s regulatory control over UCBs is affected due to this duality of control. It has made concerted efforts in the past to mitigate the adverse impact of dual regulation in the form of MoUs with state/central governments and setting up of a State-level Task Force for Co-operative Urban Banks.
Das further said, “It is our endeavour to update the knowledge and skill levels of supervisors on a continuous basis. We are adopting a multi-pronged approach … We are in the process of setting up a College of Supervisors to augment and reinforce supervisory skills among regulatory and supervisory staff.”