The Reserve Bank of India (RBI) has decided to strengthen the non-banking financial companies' (NBFC) rules in the financial year (FY) 2023-24. In its goals for the shadow banks for 2023-24, the RBI has said it will examine licencing requirements and will start supervisory actions against the NBFCs not complying with rules.

Also, impact assessment of recent modifications in asset classification norms for NBFCs will be done in 2023-24, it said.

In supervisory measures, the RBI says it has operationalised a unified department of supervision in which supervision of banks, urban cooperative banks and NBFCs is being undertaken in a holistic manner under one umbrella department.

The move is expected to improve the handling of certain issues that arise from regulatory or supervisory arbitrage, interconnectedness and information asymmetry, says the central banks.

In the year 2022-23, the RBI said a working group comprising officials from the Reserve Bank, select large NBFCs and audit firms reviewed and designed new returns’ formats as per the supervisory framework for NBFCs in alignment with the Indian Accounting Standards (Ind-AS). "These returns will be taken up for implementation."

It classified 16 NBFCs in the upper layer for the purpose of sectoral assessment of NBFCs after the latest scale-based regulatory framework. "The model design was also modified to cover all NBFCs in various layers viz., top, upper, middle and base layer".

Stress testing model of NBFCs was also augmented to cover multiple balance sheet and profit & loss statement parameters/ ratios, the forward projections and CRAR levels under baseline, medium and severe scenarios for estimating slippages.

The online fraud reporting system for NBFCs was also started on July 1, 2022. As part of this system, a separate quarterly return (FMR 4) has been introduced for reporting security incidences, i.e., theft, burglary, dacoity and robbery. "Further, workshops have been conducted for select NBFCs to sensitise them on fraud prevention, prompt /accurate reporting and follow-up action."

The Reserve Bank said it has taken several steps to strengthen the compliance function in such supervised entities. "The Unified Fraud Reporting system for all SEs is being implemented as part of the augmented reporting system under the Centralised Information Management System (CIMS) project."

In FY23, the central bank says it took measures for the enhancement of cyber security of all entities, along with regular assessment through onsite and off-site supervisory mechanisms.

In its fraud analysis, the RBI says while private sector banks reported the maximum number of frauds, public sector banks continued to contribute the maximum to the fraud amount during 2022-23. Frauds have occurred predominantly in the category of digital payments (card/internet). "However, in terms of value, frauds have been reported primarily in the loan portfolio (advances category)."

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