Experts assert that there is an urgent need to strengthen the regulations pertaining to core investment companies (CICs). Core investment companies are NBFCs that possess not less than 90 percent of its net assets as equity shares, preference shares, bonds, debentures, debt or loans in group companies.
The liquidity crisis for NBFCs surfaced when IL&FS failed to fulfill its payment obligations, followed by the downgrades by credit agencies in the past two months.
On 17 September, rating agency ICRA termed IL&FS’s credit rating as default, after it could not meet the repayment obligations of Rs 12,000 crore in short-term and long-term borrowings.
In December 2012, RBI had directed the NBFCs to maintain a mandatory statutory liquidity ratio (SLR) of 15 percent of aggregate deposits.
The central bank had always highlighted the need for a well-regulated NBFC sector and its impact on the economy. Former RBI deputy governor Anand Sinha, in a speech on 7 January 2013, had revealed that traditionally, regulation of banks has been given greater importance over non-banking counterparts, as the protection of depositors has traditionally been an important mandate of banking supervisors.
NBFCs‘ had undergone major regulatory changes after the 2008 financial crisis.