In a landmark step aimed at strengthening governance and enhancing accountability in the rapidly growing Non-Banking Financial Company (NBFC) sector, the Reserve Bank of India (RBI) has officially recognised the Finance Industry Development Council (FIDC) as a Self-Regulatory Organisation (SRO) for NBFCs.
This recognition follows the RBI’s earlier invitation for applications issued on June 19, 2024, calling for entities to apply for SRO status under the overarching guidelines laid out in the ‘Omnibus Framework for recognition of Self-Regulatory Organisations for Regulated Entities of the Reserve Bank’, dated March 21, 2024.
Why an SRO for NBFCs?
NBFCs have become critical players in India’s financial landscape, especially in reaching underserved and unbanked segments of the population. However, the sheer diversity and growing complexity of the sector call for enhanced self-discipline, standard-setting, and grievance redressal mechanisms. That’s where SROs come in.
By recognising an SRO, the RBI aims to foster industry-driven regulation, with peer oversight and voluntary compliance mechanisms, while still retaining ultimate regulatory authority.
FIDC Chosen as the First SRO
The RBI received three applications or letters of interest for recognition as an SRO for NBFCs. After careful evaluation against the criteria in the Omnibus Framework, only FIDC met the full set of requirements by the submission deadline.
The other two applications were found to be incomplete and thus were not considered for recognition.
The recognition of FIDC as an SRO is a significant milestone. FIDC has been an active industry body representing the interests of asset and loan financing NBFCs for over two decades. It has demonstrated capabilities in industry coordination, policy representation, and dissemination of regulatory updates, which align well with the expected functions of an SRO.
What Does This Mean for NBFCs?
As a recognised SRO, FIDC will now take on several critical responsibilities, including:
- Framing and enforcing a code of conduct for member NBFCs
- Facilitating compliance with RBI regulations through guidance and interpretation
- Acting as a bridge between NBFCs and the RBI for regulatory concerns
- Handling grievances and disputes within the NBFC community
- Promoting best practices, training, and capacity building
This move is expected to improve transparency, ethical conduct, and risk management across the sector. It also enables a more collaborative approach to supervision, where the regulator and the industry work together toward a more resilient financial system.
Looking Ahead
While the recognition of FIDC as the first NBFC SRO is a positive step, the RBI’s framework is designed to accommodate multiple SROs in a sector, each possibly representing different sub-categories or business models within the NBFC space.
The recognition process is rigorous, and the RBI has made it clear that only well-structured, transparent, and accountable organisations will be considered.
As India’s financial sector evolves, the establishment of self-regulatory bodies like FIDC is a welcome development—balancing regulatory oversight with industry-led discipline and innovation.