What were the major reasons behind the recent NBFCs crisis? And the role of Reserve Bank of India in stabilizing the crisis by VEDANT JAIN at LEXCLIQ

The NBFCs sector faced a huge liquidity crunch because of their flawed business model as they did not have money to lend nor they were able to raise any funds.  In 2018 the NBFC sector had undergone a huge financial crisis because of many reasons in the functioning and regulation of the NBFC sector by the regulating bodies.

Reasons:-

  1. The NBFCs borrows short-term loans and most of the time it gives money for lending on a long-term basis which creates an asset-liability mismatch and therefore, affects their profitability generation. Also, the functioning and mismanagement of the BOD/Managers.
  2. The second reason was these NBFC has lend/advanced money to some of their borrowers despite their default and continued to do without putting any regulation w.r.t. those borrowers.
  3. The other reason was that these entities were put under dual regulation by various bodies such as RBI/SEBI/IRDIA which made their functioning complex and can easily be adverse by the loopholes in their functioning.
  4. After the crisis of IL&FS, the market was under the fear of other crisis which created the domino effect in the market as the rating agencies were decreasing their ratings.

The RBI and govt. has been keen to put life into the NBFC sector, the RBI has power under various section of the RBI Act to monitor NBFCs functioning and also in the recent budget they proposed a Finance Bill 2019 which amended the RBI Act, 1934 and gave RBI some powers which are:-

  1. Control over Management – under a new section of 45-ID and 45-IE the RBI can control the management of NBFC. It can either change the directors of non-govt. NBFC or can replace the board of directors (BOD) of NBFC. RBI can remove the existing director and replace it with a new director for a term of 3 years which can be reappointed. Anything done by the new director in good faith will not be questioned. RBI can also place an administrator upon the BOD/partners for a term of 5 years to monitor the functioning of the NBFCs.
  2. Power to remove auditors – under section 45MA the RBI can issue direction to the auditors and now under new section 45MAA the RBI regulated NBFCs can be ordered to have a special audit of their account by the auditor appointed by RBI and it can also debar/remove existing auditors of the NBFCs.
  3. Amalgamation, Reconstruction or Splitting of NBFC – under new section 45MBA the RBI can also do the activity of Amalgamation, Reconstruction or Splitting of NBFC into a viable and non-viable entity for the better performing of its objectives and also that are very important for the financial system as a whole.
  4. Inspection and Furnishing of Information of Group Companies – under section 45NAA the RBI now can order NBFC to give the details of the account statements and information regarding group companies of the NBFCs and can order inspection & audit of the same.

The govt’s intention in giving the above wide powers to the RBI can be understood for the better functioning and regulation of NBFCs.

Leave a Reply

Articles

How to Watch ‘Hocus Pocus 2’ Online — Release Date, Time, Cast, and More

Release date and time: Hocus Pocus 2 debuts on Disney Plus on Friday (Sept. 30) at 3 a.m. ET. Cast: Bette Midler, Sarah Jessica Parker, Kathy Najimy, Doug Jones, Whitney Peak, Lilia Buckingham, Belissa Escobedo, Hannah Waddingham, Tony Hale, Sam Richardson Director: https://zencastr.com/WATCH-Hocus-Pocus-2-2022-Streaming https://www.podchaser.com/lists/watch-hocus-pocus-2-movie-2022-online-streaming-on-disney-107u29x78k https://www.iamtn-network.org/profile-1/hocus-pocus-2-move-full-sub-eng-hd-2022/profile https://www.iamtn-network.org/profile-1/hocus-pocus-2-how-to-watch-online-with-disney-plus/profile Anne Fletcher Running time: 1 hour and 43 minutes […]

Read More
Articles LexCliq Services

Impact Keto Chrissie Swan Australia Exposed Formula, Is Keto Apple Gummies Safe? SCAM ALERT, Official Price!

Product Name – Impact Keto Chrissie Swan Australia ✔️Category – Health ✔️Side-Effects – NA ✔️Price for Sale – Best Price ✔️Availability – Online ✔️Rating -⭐⭐⭐⭐⭐ ✔️Official Website – [SALE IS LIVE] Hurry Get Your “Impact Keto Chrissie Swan Australia” Best Deal For 1st User Limited Time Offer!! What are the advantages and benefits given by […]

Read More
Articles

Bio Lyfe Keto Gummies Reviews (Scam Or Trusted) Beware Before Buying

Bio Lyfe Keto Gummies are a reasonable extraordinary and hearty course of activity. They incorporate present day and standard adornments to address or fix logical issues. You need to kill the cannabinoids from the plant with exorbitant mind fulness. It very well might bejoined with first rate trimmings to make it extra enormous and taste better.The […]

Read More