India's Central Bank panel suggests conversion of large shadow banks into normal banks

2020-11-20 13:35:51 GMT2020-11-20 21:35:51(Beijing Time) Xinhua English

MUMBAI, Nov. 20 (Xinhua) -- India's Central Bank has suggested large non-banking financial companies (NBFCs) including corporates with asset size above 6.7 billion U.S. dollars to convert into banks subject to certain conditions in a discussion paper released on Friday.

Other conditions proposed by the Reserve Bank of India include completion of 10 years of operations and meeting due diligence criteria and compliance with additional specified conditions, said the paper compiled by a panel of Reserve Bank of India (RBI).

NBFCs, also called as shadow banks, are akin to normal banks, but they cannot accept demand deposits and do not form part of the payment and settlement system and cannot issue cheques drawn on itself. These parallel banking companies are incorporate under companies act and not under banking act.

The suggestions made by the internal working group of RBI in the paper was constituted earlier in June to review extant ownership guidelines and corporate structure for Indian private sector banks.

"Large corporate/industrial houses may be allowed as promoters of banks only after necessary amendments to the Banking Regulation Act, 1949 (to prevent connected lending and exposures between the banks and other financial and non-financial group entities); and strengthening of the supervisory mechanism for large conglomerates, including consolidated supervision," the paper said.

The universe of India's NBFCs including 9,601 companies of which top 50 account for 80 percent of the market share of loans. In the past 10 years, the assets size of NBFC grew at a compounded annual growth rate of 18.6 percent, exceeding the 10.7 percent rate of growth reported by scheduled commercial banks.

As on March 31, 2020, the asset size of India's NBFC sector, including housing finance companies, stood at 688 billion U.S. dollars. Enditem