Regulatory Approach
Regulators must ensure financial stability as NBFC space gets complex, says RBI Rao
This story was originally published at 15:28 IST on 27 November 2024
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MUMBAI – Regulators need to co-ordinate better to ensure that financial stability is maintained as the rising number of entities within the non-banking space has made the financial system complex, Reserve Bank of India's Deputy Governor Rajeshwar Rao said at the "High-Level Policy Conference of Central Banks in the Global South", organised by the RBI.
"...we have been trying to harmonise regulatory approach for them (NBFCs) to avoid any potential arbitrage. However, the non-banking space in India involves a lot many diverse entities than just the NBFCs. And, given the complexity in the financial system, the interconnectedness among all such entities will become more profound. This warrants closer coordination among the financial sector regulators to ensure financial stability," Rao said.
Rao also spoke about other emerging risks such as those from extreme climate events and climate change, and the risks from emerging technologies.
"As a policymaker, it is still a challenge to quantify the climate-related risks and its impact on the real economy and the financial sector," he said. "The demand for resources to fund the real sector entities to manage physical, transition and adaptation risks can mean new institutions, newer categories of resources and new business models among existing institutions. These will be a new challenge for the regulators," he added.
On the technology front, Rao said that the challenge will be to find the balance between innovation and prudence. "We do not want to stifle such progressive practices, but we must provide suitable guardrails to ensure systemic stability," he said. End
Reported by Kshipra Petkar
Edited by Akul Nishant Akhoury
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