The RBI suggested classification of non-bank financial companies (NBFCs) on the basis of various parameters, among them the size of their assets. This is being done so as to bring in tighter regulations for NBFCs and avoid situations like the collapse of a major financier in 2018.
A discussion paper on Friday released by the RBI also proposed the imposing a 9 percent core capital on big NBFCs and allowing only limited leverage. This follows a statement made by a top RBI official in November suggesting big shadow lenders must either turn into banks or conduct smaller operations. The big NBFCs have since decades lent long-terms loans with short-term cash because of loose regulations, leading to various issues including a cash crunch that has not been recovered.
Gross bad loans was the highest at 6.3% in March 2020, even before the pandemic and RBI fears of it getting worse.