Mumbai: The RBI eased lending regulations governing the country`s shadow banking industry, removing investor limits and the need for collateral guarantees on standard debt transactions.
The Reserve Bank of India said shadow banks would henceforth be able to conduct non-convertible transactions valued at 10 million rupees ($160,000) or more unsecured and such issuance would no longer be limited to 200 investors. Restrictions would remain on debt of less than that value that is not convertible into equity, and on all convertible debt, the RBI said.
The shadow banks of India are widespread and include housing finance companies and consumer finance firms that lend small sums to individuals. The central bank also said NBFCs would not be permitted to transfer the proceeds of non-convertible debt issues to affiliates.
The non-banking financial firms (NBFCs) provide essential financial services in a country where only one household in two has access to formal banking. But there are concerns that, given the relatively loose regulatory environment they operate in, the bigger they grow, the greater the risk their activities may pose to the broader financial system.
