NBFCs should be regulated by the RBI, says former DG RBI HR Khan

The Reserve Bank of India (RBI) is likely to get more powers as the government is considering strengthening its regulatory powers over non-banking financial companies (NBFCs).

The regulatory power of the National Housing Bank (NHB) over housing finance companies (HFCs) is likely to be relinquished to the RBI. HR Khan, former RBI deputy governor and RV Verma, former CMD of National Housing Bank shared their views and outlook on the matter.

"This is a decade-old proposal. Because there is inherent conflict of interest in NHB between its refinance and developmental role and its regulatory role, that is why the power should be a separate entity. The RBI is now building up expertise.

"HFC is a subset of NBFC. NBFC-HFC issues are quite overlapping and they have a lot of linkages with banks. Banks are regulated by the RBI, it makes eminent sense that regulation sits in one place and that the regulatory power comes to RBI,” said Khan.

Supervision of HFCs should also come under RBI, Khan added.

NHB was created to promote HFCs and to promote the flow of housing credit into the sector, said Verma.

“I would think that there should be a better coordination between the NHB and RBI,” Verma added.

“There is a very elaborate system of both regulating and supervising the HFCs and there is also a growing move towards a risk-based supervision where we feel that if certain HFCs are big enough they require more close scrutiny and monitoring that happens and the resources are focused on those kinds of HFCs.

"There is adequate infrastructure, there is adequate provisioning under the NHB Act to ensure that the HFCs are well regulated body,” said Verma.

"NBFCs are more diversified portfolio and HFCs are more concentrated portfolio, so the risk is more concentrated, it requires a different kind of skillset and a different kind of approach," he added.