India’s central bank wants stricter regulations for major shadow lenders. Bloomberg.
Reserve Bank of IndiaHe wants to prevent events that continue to have an impact on the financial system even now, such as the collapse of a major financier in 2018, Friday, January 22.
According to a discussion document seen by Bloomberg, the bank wants to classify non-bank financial companies into one of four categories based on conditions such as the size of assets.
One suggestion is a top tier 9 percent core capital requirement, similar to banks. It will only allow them to use a limited amount of leverage.
Among other offers, all shadow lenders classify the loan as 90 days overdue assets, a decrease from the previous 180-day level. Mid-tier non-bank lenders will follow a board-approved policy on capital adequacy, and top-tier shadow financiers will follow risk rules as followed by major banks. Another important recommendation is the mandatory rotation for statutory auditors for middle and upper shadow banks.
Bloomberg writes that the newspaper comes after a speech by a senior RBI official responsible for banking regulation. He said that as looser regulations allow these lenders to become important last-mile lenders in India, the major shadow lenders should turn themselves into banks or downsize their operations.
However, others said that by accumulating risk, it increased short-term cash while also making long-term loans. This caused the infrastructure financier to fall in 2018 and the government to seize a mortgage creditor in 2019. According to Bloomberg, these events had a cash shortage that has not yet disappeared.
Central bank of india also advice let companies become lenders. A working group said it might be a good idea to create a framework in which industrial groups can have a larger share of lenders. This may aim to gain more capital or increase competition.