Chapter VI of the Finance (No.2) Act 2019 provides for amendments inter alia to the RBI Act 1934 with respect to Non-Banking Finance Companies (NBFCs). In addition to increasing the limit for their net owned funds, the amendments empower the RBI to remove directors, supersede the Board, take action against auditors and frame schemes of arrangement. These amendments have been introduced in view of the issues arising from the ILFS imbroglio. The amendments have taken effect from 9 August 2019.
The amendments appear to pave the way for a ‘RBI 2.0’, with added powers and functions for the RBI. NBFCs have now been brought within greater purview and scrutiny of the RBI. The vital role of NBFCs as the ‘shadow banking sector’ has compelled the government to strengthen and enhance the regulatory framework, which is the need of the hour. It is expected that the amendments will have a significant impact on NBFCs, who will need to revisit their overall regime vis-a-vis RBI. The extent of enforcement and scrutiny by RBI and its impact is something that time will tell.
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