NBFCs don't need much regulation

NBFCs and banks need not be treated in the same manner

The big primary markets for equity and debt securities are not unsophisticated households. All that is required in the primary market is sound disclosure, and after that professionals on this market make good gatekeepers. NBFCs that finance themselves through banks or bonds thus require no micro-prudential regulation. If an NBFC deals with a consumer on the lending side, we require consumer protection on how consumers are treated.

We are all in a tizzy about NBFCs in the aftermath of the IL&FS default. But we should be careful in understanding the market failures and putting in the right regulatory responses. Let's start