NBFC body FIDC will apply to RBI for SRO licence: Raman Aggarwal

After the central bank’s announcement, industry players and industry body representatives said they are looking forward to SROs.

The Finance Industry Development Council (FIDC), a body of non-banking financial companies (NBFCs), plans to apply to the RBI for a self-regulatory organisation (SRO) licence, said Raman Aggarwal, Director, FIDC. This development comes after the Reserve Bank Of India (RBI), on June 19, invited applications for SROs under the omnibus framework issued in March 2024.

“Yes, we will apply for the licence. We have already tabled our issues at the pre-budget meeting with the Department of Financial Services,” Aggarwal told Moneycontrol.

Earlier, Moneycontrol had reported that FIDC had sought some relaxations in the SARFAESI Act, namely, dual registration of NBFCs with the RBI, TDS (tax deducted at source) for institutional or high net worth individual borrowers, and allocation of funds through SIDBI (Small Industries Development Bank of India).

Aggarwal proposed this during a pre-budget consultation with Finance Minister Nirmala Sitharaman.

SROs for NBFCs

SROs are primarily envisaged for investment and credit (ICC) NBFCs, housing finance companies (HFCs), and Factors. SROs are expected to have a good mix of ICCs, HFCs and Factors among their members. To ensure fair representation of smaller NBFCs, the RBI has said that ICCs and Factors should comprise least 10 percent of an SRO's members.

After the central bank’s announcement, industry players and industry body representatives said they are looking forward to SROs. “SROs in the NBFC space would have a blend of several industrial players, both large and small. This could mean well for the growth of the larger NBFC space,” an NBFC executive said.

Regulatory action

Over the past few months, the RBI has been taking strict action against some NBFCs. On March 5, the central bank barred JM Financial Products from issuing loans against shares and debentures, including loans for IPOs (initial public offerings). In addition, some media reports said the Securities and Exchange Board of India (SEBI) will soon come out with an order on JM Financial for its alleged role in inflating its IPO price.

The RBI has also asked IIFL Finance to stop gold loans with immediate effect, noting "supervisory concerns" in the company's gold loan portfolio.

Also read: Self-regulatory structure for non-banks a welcome move, experts say

Further, the RBI has imposed restrictions on Paytm Payments Bank, citing non-compliance. The RBI has also directed Bajaj Finance to stop disbursing loans under its ‘eCOM’ and ‘Insta EMI Card’ products with immediate effect.

Additionally, RBI Deputy Governor Swaminathan J urged NBFCs to be vigilant about potential risks and vulnerabilities in the financial system, and bolster governance.

“NBFCs should bolster governance and assurance function, and maintain constant vigil against potential risks and vulnerabilities,” Swaminathan said at a conference organised by the RBI on May 15 for the heads of assurance functions (i.e., Chief Compliance Officers, Chief Risk Officers, and heads of internal audit) of select NBFCs.

Also read: NBFC industry lobby pitches for rule relaxations by finance minister

Swaminathan further said that in the highly dynamic and challenging environment in which financial entities operate, they are exposed to a multitude of risks that can impact their financial and operational resilience.