RBI to step up scrutiny of NBFCs, banks

The Reserve Bank of India will undertake closer scrutiny and auditing of shadow lenders and large urban co-operative banks in a bid to improve supervision of the financial sector.

The central bank will implement risk-based audits at shadow lenders and urban co-operative banks that focus on localized lending, Governor Shaktikanta Das said Friday. It will also harmonize guidelines relating to the appointment of auditors across all types of lenders.

The RBI’s tighter scrutiny comes after India’s financial sector was rocked by a shadow banking crisis that led to the bankruptcy of two major finance firms and the rescue of a couple of banks. The debacle added to bad loans at the nation’s banks, which are estimated to swell to a two-decade high of 12.5% of credit by March.

“Our supervisory focus in improving governance and assurance functions in supervised entities continues to engage the attention of the RBI,” Das said after keeping key interest rates unchanged as expected.

To date, the RBI has focused such audits on traditional banks and large shadow lenders.

In the recent past, weakness in business units, risk management and internal audits have proved to be a “major fault line” affecting some lenders, Das said in his statement.