Strict RBI norms for Shadow finance companies

Strict RBI norms

Strict RBI Norms : The shadow banking system refers to unregulated activities by regulated institutions. Examples of intermediaries not subject to regulation include hedge funds, unlisted derivatives, and other unlisted instruments, while examples of unregulated activities by regulated institutions include credit default swaps.

Non banking finance companies are finding it hard to deal with financial crunch. Increased compliance also added their concern. Highlighting the issues, Mahesh Thakkar, director general at Finance Industry Development Council, which is the lobbying body for financiers, told the agency that permits were cancelled as NBFCs “couldn’t raise even Rs 20 million (Rs 2 core) to meet regulatory requirements.”

Strict RBI Norms For Shadow lenders

  • The Reserve Bank’s accelerated curbs on shadow lenders have put additional pressure on a sector already at the mercy of a shaky Indian credit market and an economic slowdown.
  • Government policies too had favored stricter approach and center increased the RBI interference for shadow lenders and housing finance companies.
  • The RBI will examine concerns around its strict data localisation rules that require storing of customer data exclusively in India without creating mirror sites overseas, as per government.

The perils in the sector highlighted by missed repayments on dues by Dewan Housing Finance Corp. and Reliance Home Finance Ltd. in recent months have heightened risk-off sentiment and worsened the lenders’ access to domestic money markets. RBI has thus,  tightened regulations this year by putting in place rules requiring shadow lenders to appoint a chief risk officer and proposing stringent liquidity requirements.

DHFL share plunged about 5% on Thursday

DHFL share have been dropped over 5% in trade on Tuesday after the company informed the exchange that it has defaulted on its financial repayment obligation of about 1571 Cr related to issuance of bonds and commercial papers.

In a break-up, the non-banking financial company (NBFC) said it has defaulted on Rs 46.92 crore towards interest amount on secured NCDs (9.92 per cent and 9.40 per cent/10 year tenor); on NCDs issued through a public issue for multiple tenors of amount involving interest of Rs 363.77 crore and principal amount of Rs 1,059.91 crore.