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Industry body Finance Industry Development Council (FIDC) has issued an advisory to NBFCs to comply with regulatory guidelines and put in place measures to monitor end use of funds.
The advisory comes in the wake of back-to-back actions from RBI, first barring IIFL Finance from giving gold loans followed by asking JM Financial Products to stop financing against shares and debentures. Later, SEBI barred parent JM Financial from acting as the lead manager for any new debt public issue.
“We have seen regulatory actions over the past few months by RBI and other regulators against a few of the large entities having substantial business to emphasise on the importance of strict compliance and governance. Of course, the clear message is that if business has to be done, it has to be done in accordance with acceptable standards and within the laws of the land,” the letter said.
FIDC advised members to adhere to all applicable laws and regulations at all times, especially with norms pertaining to KYC/AML as “any loophole in internal processes could compromise India’s internal security and economic interests”. It also advised lenders to avoid short-cuts or measures to circumvent regulatory norms.
“There should not be a shortcut or an attempt to circumvent these most important norms in any manner,” Director General Mahesh Thakkar said, adding that any observations, concerns or queries raised by the regulator must be accorded the highest priority and suitable action taken.
NBFCs should keep the regulator informed on the remedial measures being taken to address their concerns. They should also put in place appropriate risk management frameworks, to be reviewed periodically, and put in place processes for monitoring of end use of loans.
“Members must ensure that there is zero risk appetite on regulatory matters,” FIDC said, adding that NBFCs should ensure sustainable growth and profitability and “not fall victims to short term measures”.
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