FinMin agree on more powers to RBI to punish erring NBFCs

The RBI and the Finance Ministry are "agreeable" to a suggestion of granting enforcement powers to the central bank similar to the SEBI to tighten regulatory ambit over NBFCs, a Parliamentary panel said today.
The Committee on Estimates had recommended that the RBI Act should be amended to empower RBI with punitive powers to punish defaulting NBFCs and ensuring repayment of deposits.
The report of the panel tabled in Parliament said that the RBI and the Ministry of Finance, with a view to bridge the regulatory gaps, "is agreeable to the proposed recommendation of the Committee to grant enforcement powers for search and seizure to the RBI as has been granted to SEBI".

The Committee was also given to understand that the steps would tighten the regulatory and supervisory ambit of RBI over NBFCs thereby obviating the need of a separate legislation.
"Despite the reply of the Ministry stating that there is no reluctance on the part of RBI to empower itself effectively, the Committee are constrained to note that no tangible initiative has been taken by the RBI in this direction all these years," the report said.
Further, depreciating "this casual" approach of the Ministry, it said the matter of absence of enforcement powers with the RBI, the regulator of NBFCs, "should have been effectively taken up long ago".

On small payments banks and banking correspondents, the report said they may address concerns on mobilisation savings from the targeted segments, but the "lending part is not addressed" by them.

"More over the Committee also believe that small payment banks may not compete with the NBFCs in terms of ease at which the NBFCs can be approached for availing deposit facilities, their reach in terms of providing financial services at the doorstep of the customers and also the facility of customisation of the product," the report said.
Therefore, the Committee reiterated its recommendation that the RBI in consultation with the Ministry of Finance should explore the possibility of allowing registrations of deposit taking NBFCs with stringent regulations so that the needy persons in far flung areas can avail "safely the services of NBFCs".

On the issue of Rs 556 crore lying unclaimed with 24
deposit taking NBFCs, the Committee reiterated its recommendation that RBI specify in "unambiguous terms" whether the amount lying unclaimed till 2014 have actually been transferred to Investor Education and Protection Fund and if not, the reasons therefor.
It also noted that RBI has suggested suitable amendments to the RBI Act to empower them to impose penalties without approaching court of law on auditors of NBFCs making an offence.
Also, non payment of penalty imposed by RBI would be an offence and allow the central bank to issue "garnishee orders" for recovery of penalty, the report said.

"The Committee hope that the Ministry of Finance would take necessary steps to bring in the required changes in the RBI Act, 1934 at the earliest so that the gaps in regulation of the NBFCs are addressed and the smooth functioning of the sector is ensured," it added.