The Reserve Bank of India (RBI) has extended supervision to auditors, banks and rating companies to prevent defaults and ensure broader financial stability.

“Apart from strengthening the existing four pillars of supervision — on-site examination, off-site surveillance, market intelligence and reports received from statutory auditors — a fifth pillar, periodic interaction with stakeholders like statutory auditors, credit rating agencies and banks that have have large exposure to NBFCs, is getting institutionalised as part of the supervisory process for monitoring the incipient build-up of risks so as tobe able to take pre-emptive actions,” said RBI.

It has taken steps to strengthen the supervision of NBFCs, rating companies and auditors, which will ensure that these functions are carried out in a focused manner. There are 276 deposit-taking NBFCs with asset size of more than Rs 500 crore that face greater on-site and off-site monitoring, and together they account for 85% of the sector’s assets.

In the past, RBI had proposed to integrate certain functions of supervisory departments to understand the systemic linkage between banks and NBFCs, and their interconnectedness, to enable holistic understanding of systemic risks, linkages, contagion and risk build-up across entities. RBI has talked about bringing all government-owned, non-deposit taking, systemically important NBFCs and government-owned deposit taking NBFCs under the regulator’s on-site inspection framework and off-site surveillance. It cancelled registrations of 1,604 non-banks for non-fulfilment of the criterion of the minimum net owned fund requirement of Rs 2 crore to weed out noncompliant or weak NBFCs.

The Finance Bill 2019, through amendments in the RBI Act, 1934, conferred powers on the RBI to bolster governance of NBFCs. “These measures are geared toward allaying investors’ apprehensions and aiding NBFCs in performing their role better,” said RBI. “Going forward, the RBI will continue to maintain constant vigil over NBFCs & take necessary steps to ensure overall financial stability.” #casansaar (Source - Economic Times)