RBI Tightens takeover Norms for Shadow Banking

(Reserve Bank of India RBI) may ease norms for infrastructure funding www.ambitionias.com
  • The Reserve Bank of India (RBI) plans tougher rules for takeovers involving non-banking financial companies (NBFCs).
  • In its latest effort to boost transparency and strengthen its grip on the alternative lenders that account for a large part of the domestic shadow-banking sector, the RBI said any purchase of a stake of 26 per cent or more in a company, or a change in more than 30 per cent of its directors, would need the central bank’s permission.
  • The RBI also said in its circular that the source of funds behind new investors in any NBFC will have to be disclosed.
  • It also asked for an undertaking that the new proposed investors are not associated with any existing but unregistered body that accepts public deposits.
  • NBFCs play a critical role in extending credit to areas where traditional finance cannot reach in a country where only just over half of the population has access to the mainstream banking system.
  • However, controlling these NBFCs has been made a key priority for the RBI, given their size and reach.