Reserve Bank Of India Likely To Propose Stringent Norms For Shadow Banks: Report

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The Reserve Bank of India is likely to propose stricter regulatory norms for shadow banks in a bid to strengthen solvency and sustainability of a sector that has been showing signs of stress in recent years, two sources said. RBI began trying to move towards tighter norms for the sector after Infrastructure Leasing & Financial Services, the largest NBFC, went bankrupt in 2018, and Dewan Housing Finance Corp and Altico Capital defaulted on payments in 2019. The RBI is expected to set out its proposals in a discussion paper next week and recommend that bigger non-banking finance companies (NBFCs), or shadow banks, maintain a statutory liquidity ratio (SLR), the sources said. 

Neither officials wished to be named as the discussions on the proposals have not been made public. Currently, banks are mandated to maintain SLR or the minimum percentage of deposits that they must hold in the form of liquid cash, gold or government securities at 18 per cent. The RBI could also suggest large NBFCs be required maintain a cash reserve ratio. CRR currently stands at 3 per cent, below the usual 4 per cent level, after a temporary reduction by RBI due to the ongoing pandemic that will be reversed after March 31.

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