Raising concern on regulatory and data availability gaps on the shadow banking system, the Reserve Bank of India (RBI) on Friday said plugging these was necessary for a full assessment of the size of the non-banking financial segment, and of the systemic risks posed by the latter. To address these, a working group with representation from all financial sector regulators is attempting to “macro map” the shadow banking sector, it said. RBI also raised concern about regulatory gaps in the case of entities operating collective investment schemes, such as chit funds or multi-level-marketing schemes.
Recently multi-level marketing firm Speak Asia Online allegedly duped thousands of investors and the case is under investigation by various agencies, including the enforcement directorate and cyber crime cells of the police in various cities.
In its Financial Stability Report issued on Friday, RBI cited a few examples from the current financial system which were out of its regulatory purview. “Government-sponsored NBFCs (non-banking finance companies) remain outside the regulatory and supervisory framework,” it said. It has recently proposed that all government companies qualifying as NBFCs under the revised principal business criteria will be required to comply with the regulatory framework applicable to NBFCs at the earliest.
The report says, “There is little regulatory oversight over the large quantum of funds handled by post offices, employees’ provident funds or government pension schemes.”
However, analysts say using the term ‘shadow banking’ for government NBFCs, post offices and pension and provident fund schemes is not fair. Though they don’t have regulatory oversight, they have government oversight and are subject to the Comptroller and Auditor General’s scrutiny. Post offices, pension and provident fund schemes are directly owned by the government.