FSLRC says deposit-taking NBFCs must obtain license to operate as a bank

While recognising the significant role played by NBFCs in providing finance, the Working Group of FSLRC said deposit-taking NBFCs must obtain a license to operate as a bank so that it would fall within the regulatory purview of the banking regulator

The Working Group (WG) set up by the Banking Financial Sector Legislative Reforms Commission (FSLRC), has recommended that non-banking financial company (NBFC)'s which accept deposits must obtain a license to operate as a bank and will fall within the regulatory purview of the banking regulator.
The WG headed by Kishori Udeshi, former deputy governor of the Reserve Bank of India (RBI), said, “...deposit taking NBFCs, and functionally provides the same service as a bank. Yet there is neither a level playing field nor equal treatment between banks and NBFCs. A deposit taking NBFC is not subject to the same prudential regulations (such as branch licensing) as is applicable to a bank. This gives NBFCs a competitive advantage over traditional banks."
“The class of NBFCs that do not accept deposits from public will not be regulated by the banking regulator. Such NBFCs will be regulated by the Unified Financial Authority (UFA),” the WG said in its report.
Recognising the role played by NBFCs in providing finance, the WG said that credit linkages between banking and non-bank finance should be subject to appropriate regulatory oversight from the viewpoints of both micro-prudential regulation and systemic risk regulation.
After showing a steady increase till 2007, public deposits of NBFCs declined sharply by end-March 2011. However, at the same time, the sizes of assets have grown steadily, indicating greater demand for the services provided by these companies. A major reason for the decline is the stringent regulatory regime towards deposit-taking NBFCs which has resulted in a reduction of the number of NBFCs and the amount of deposits with them. Consequently, there has been migration of depositors towards the banking system, which is better regulated and supervised.
As the Deposit Insurance and Credit Guarantee Corporation (DICGC) does not insure these deposits, and these entities carry out activities similar to that of banks without being subject to the full purview of banking regulation, it raises concerns about consumer protection and ensuring the stability of the financial system, the WG report said.
At present only banks, public financial institutions and housing finance companies are allowed to avail of the privileges granted to creditors under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). Institutional lenders such as NBFCs, deposit or non-deposit taking, cannot avail of the privileges under SARFAESI Act, unless the Government of India (GOI) notifies that a particular NBFC is a “financial institution" under SARFAESI Act. This creates an unequal playing field, where banks and financial institutions are better off than NBFCs when it comes to recovery of debts. There is therefore merit in extending the privileges of the SARFAESI Act to other institutional lenders, which are regulated by the RBI as it would level the playing field.
The WG group said there is a need to amend the SARFAESI Act to allow all secured creditors who are regulated entities under the purview of the Act. 



Anil Agashe

4 years ago

So Mutthut Fin and Mannapuram can become banks now? Wonderful news.

SEBI does away with physical filing of KYC documents to KRAs

The intermediaries would need to submit scanned copies of investor documents to the KRAs and retain the physical documents with themselves. However, physical documents would need to be submitted, whenever KRAs demand them

Market regulator Securities and Exchange Board of India (SEBI) has done away with the submission of physical documents by investors to the KYC Registration Agencies (KRAs) in favour of the electronic format only. The move is seen as an attempt to streamline the process of “Know Your Client” (KYC) procedures.


The intermediaries, including mutual funds, would need to submit scanned copies of investor documents to the KRAs and retain the physical documents with themselves.


However, the physical documents would need to be submitted, whenever KRAs demand them.


So far, KRAs—which are responsible for maintaining KYC records across all SEBI-regulated entities—were required to maintain the original KYC documents, both in physical as well as electronic formats.


To minimise the physical paperwork, SEBI has now amended its KRA regulations, allowing the market intermediaries to keep the original investor documents in physical form with them and submit only the scanned copies to the KRAs.


“The intermediary shall perform the initial KYC/due diligence of the client, upload the KYC information with proper authentication on the system of the KRA, furnish the scanned images of the KYC documents to the KRA, and retain the physical KYC documents,” SEBI said.


Even in cases of any change in investor KYC details, the market intermediaries would retain the updated documents in physical form with themselves.


As per the new norms, all market intermediaries and agents (RTI and STA) acting on behalf of mutual funds would also have to submit only scanned KYC documents to KRAs.


However, the intermediaries and mutual funds would have to furnish the physical KYC documents or authenticated copies, whenever desired by the KRAs, SEBI said.




4 years ago

Instead of sending the documents to the KRAs; these are to be held with the intermediary to be submitted later on demand.

Documentation process remains as it is.

How does this simply the KYC procedure?

Nifty, Sensex will try to move higher: Monday Closing Report

If the Nifty holds today’s low and closes above 5,675, the market will head higher

The market settled lower as continued political uncertainties at the Centre ignited fresh worries about fate of the fiscal reforms of the government. If the Nifty holds today’s low and closes above 5,675, the market will head higher. The National Stock Exchange (NSE) reported a volume of 68.24 crore shares and advance-decline of 567:971.


The Indian market opened in the positive on supportive global cues and assurance by finance minister P Chidambaram on Saturday that the government would relax rules for foreign investors in government and corporate bonds next month. Markets in Asia were mostly higher as Cyprus managed to broker a deal with international lenders, thus avoiding a collapse of its banking system.


The Nifty opened 56 points higher at 5,707 and the Sensex gained 158 points over its previous close to resume trade at 18,894. Buying in realty, consumer durables, oil & gas and state run companies helped the market hit its intraday high in initial trade itself. At this point the Nifty touched 5,718 and the Sensex rose to 18,950.


Profit taking at higher levels saw the benchmarks paring part of their gains and trading sideways in the morning session. The indices continued to remain range-bound in noon trade as optimism from the global markets boosted investor sentiment back here.


However, the market which started the day on a firm note sank into the red around 2.00pm as political tensions came to the fore once again. The Samajwadi Party threatened to withdraw support to the UPA government at the Centre. Concerns of an early election derailing the reforms push worried investors. The development led the benchmarks to their lows in the last hour of trade. The Nifty fell to 5,624 and the Sensex went back to 18,655 at their respective lows.


Erasing all its gains in the late session, the market closed in the negative for the seventh day in a row. The Nifty fell 18 points (0.31%) to 5,634 and the Sensex closed the session at 18,681, down 54 points (0.29%).


The broader indices underperformed the Sensex today, as the BSE Mid-cap index declined 0.32% and the BSE Small-cap index dropped 0.80%.


The top sectoral gainers were BSE Realty (up 0.79%); BSE Power (up 0.56%); BSE Oil & Gas (up 0.49%); BSE Consumer Durables (up 0.43%) and BSE PSU (up 0.20%). The main losers were BSE Capital Goods (down 1.44%); BSE Auto (down 0.78%); BSE Metal (down 0.71%); BSE Bankex (down 0.66%) and BSE Fast Moving Consumer Goods (down 0.41%).


Nine of the 30 stocks on the Sensex closed in the positive. The major gainers were ONGC (up 2.96%); NTPC (up 2.04%); HDFC (up 1.16%); Dr Reddy’s Laboratories (up 0.77%) and Hindustan Unilever (up 0.72%). The chief losers were Hero MotoCorp (down 2.42%); Tata Steel (down 2.28%); Larsen & Toubro (down 2.19%); Bharti Airtel (down 1.95%) and GAIL India (down 1.94%).


The top two A Group gainers on the BSE were—GMR Infrastructure (up 9.52%) and Essar Oil (up 8.44%).

The top two A Group losers on the BSE were—MMTC (down 4.93%) and Unitech (down 4.18%).


The top two B Group gainers on the BSE were—Filatex India (up 20%) and KEW Industries (up 18.50%).

The top two B Group losers on the BSE were—Wim Plast (down 19.77%) and Gennex Laboratories (down 19.27%).


Of the 50 stocks on the Nifty, 20 ended in the green. The key gainers were DLF (up 5.04%); NTPC (up 2.05%); BPCL (up 2.04%); Power Grid Corporation (1.76%) and ONGC (up 1.74%). The top losers were Bank of Baroda (down 2.81%); Hero MotoCorp (down 2.75%); L&T (down 2.57%); Tata Steel (down 2.52%) and IDFC (down 2.34%).


Markets in Asia, with the exception of the Shanghai Composite, closed in the green following the positive outcome of the Cyprus bailout deal. The deal clears the way for 10 billion euros ($13 billion) of emergency loans and moves Cyprus toward avoiding the threat of default.


The Hang Seng advanced 0.61%; the Jakarta Composite surged 1.16%; the KLSE Composite climbed 1.04%; the Nikkei 225 jumped 1.69%; the Straits Times gained 0.385; the Seoul Composite surged 1.49% and the Taiwan Weighted settled 0.77% higher. Bucking the trend, the Shanghai Composite shed 0.07%.


At the time of writing, the key European indices were trading with gains between 0.87% and 1.67% and the US stock futures were in the positive, indicating a green opening for US stocks later in the day.


Back home, institutional investors—both foreign as well as domestic—were net sellers in the equities segment on Friday. While FIIs pulled out Rs14.20 crore from stocks, DIIs withdrew Rs135.57 crore on the same day.


Pharma major Venus Remedies today announced launch of its stress reliever over the-counter (OTC) product ‘Ezenus’ in domestic market, aiming to capture 5% of $100 million market in the stress segment within the next three years. The stock fell 0.74% to close at Rs240.90 on the NSE.


Fertiliser and seeds company Zuari Agro Chemicals today said it has shut down its plants for scheduled annual maintenance. The company has a manufacturing facility at Goa, with four plants dedicated to manufacturing of urea, DAP and NPK based fertilisers. The stock declined 4.94% to close at Rs147.25 on the NSE.


Cairn India today began natural gas sales from its prolific Rajasthan block on borders with Pakistan even as it put another oilfield in the area on production. Cairn and its 30% joint venture partner ONGC will initially produce about 5 million standard cubic feet per day (0.15 million metric standard cubic meters per day) of gas, which will go up to a maximum of 1 mmscmd by next year. The stock shed 0.04% to close at Rs277.20 on the NSE.


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