Pune, June 10 (KNN) Non-Banking Financial Companies (NBFCs) play an important role in the Indian financial system given their unique position in providing complementarity as well as competition to banks, said Shaktikanta Das, Reserve Bank of India (RBI) Governor.

Speaking at the 15th annual convocation of the National Institute of Bank Management (NIBM), Pune, the governor said, “NBFCs cater to diverse financial needs of a wide variety of customers, both in urban and rural areas.”

The credit growth of NBFCs, which was over 20 per cent earlier, slowed down in the third quarter of 2018-19 after the debt default by a systemically important NBFC. However, market confidence somewhat resurfaced in the last quarter of 2018-19 as the major sources of funding registered a recovery.

The conventional approach to their regulation and supervision has been light-touch, so that they could complement banks with their diverse financial products for niche areas and reach a large cross-section of population through innovative service delivery mechanisms, said Das.

However, with a view to strengthen the sector, maintain stability and avoid regulatory arbitrage, the Reserve Bank has been proactively taking necessary regulatory and supervisory steps, keeping in mind the requirements of the time, he added.

In the light of recent developments, there is a case for having a fresh look at their regulation and supervision.

He stated “It is our endeavour to have an optimal level of regulation and supervision so that the NBFC sector is financially resilient and robust. At the same time, NBFCs should be enabled to operate as well-functioning entities with necessary capacity to reach wider sections of population.”

The Reserve Bank will continue to monitor the activity and performance of this sector with a focus on major entities and their inter-linkages with other sectors. We will not hesitate to take any required steps to maintain financial stability in the short, medium and long-term, he added.

Further, our objective is to harmonize the liquidity norms between banks and NBFCs, taking into account the unique business model of the NBFCs vis-à-vis banks. In this context, the final guidelines on the liquidity risk management framework which we have proposed recently will be issued shortly, said RBI Governor.