During the audit and inspection for FY22, the officers of reserve Bank of India Many private banks have questioned the use of their non-bank arms to finance promoters, finance land purchases, lend against shares and lend without end-use specification—transactions that they do not on the banks’ books. Could do, thanks to strict do’s and don’ts in banking rules.
“Banks have been separately asked to reduce such exposures. In many cases, they have been asked to obtain end use certification from borrowers… There is not a single instruction in writing to all banks. But We’re doing it very clear to the banks that you can’t use NBFC (Non-Banking Finance Company) to carry out ancillary activities that you cannot do in BankAn RBI official, requesting anonymity, told ET.
In the last two decades, the growth of capital marketListing of companies on stock exchanges and the expansion of the realty industry have fueled demand for loans in lieu of betting on initial public offerings, making creep acquisitions, or simply pledging shares to trade in the secondary market, while developers, heavily Quantity depend on usury. private lenderTapped banks for institutional finance.
Banks, which have severe restrictions on exposure to share brokers, builders and stock investors, did away with regulatory hurdles by incorporating NBFCs primarily to do business as wholly owned subsidiaries, albeit in some cases. I was risky, tempting.
To provide a bouquet of services (through NBFCs) was done to maintain and strengthen relationships with large scale corporate groups while bypassing the rules. However, at times, it encouraged acrimonious practices such as perpetuating debt-deals, where NBFCs or life Insurance Or the asset management arm of the bank subscribes to debentures to repay a bank loan to a corporate to avoid default and before the loan becomes a non-performing asset (NPA).
“RBI never liked such transactions, but many banks exercised their clout. But recently RBI has become very vocal and is intent on reducing regulatory arbitrage. We have heard (RBI) Deputy Governor (MK) Jain is very serious about it. Probably, with HDFC And HDFC bank The merger is over, the regulator is preparing to frame rules on non-bank branches of banks,” said the CEO of a large bank.
With its strong opposition regarding regulatory arbitrage, the regulator refused to allow more banks to form non-banking arms, while allowing those, who were earlier granted NBFC licenses, to open their non-banking shops. will continue to drive.
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