Reference:

• The Reserve Bank of India (RBI) has granted the Finance Industry Development Council (FIDC) the status of a Self-Regulatory Organisation (SRO) for the Non-Banking Financial Company (NBFC) sector.

Key Points:

• This decision was taken under RBI’s ‘Umbrella Framework for Recognition of SROs’, issued in March 2024.
• This step is an important measure to strengthen regulatory compliance in the NBFC sector and promote industry-specific standards.

Importance and Role of a Self-Regulatory Organisation (SRO):

• An SRO is an organisation that enforces a code of conduct within its sector and ensures compliance with regulations.
• As an SRO, FIDC will function as an extension of the regulator in the NBFC sector and work with RBI to resolve sectoral issues.
• SROs help ensure better governance and transparency at the sectoral level and contribute to the more efficient development of financial markets.

Features and Membership of FIDC:

• FIDC represents around 400 NBFCs, and membership is voluntary for eligible members.
• As an SRO, FIDC must be a non-profit company under Section 8 of the Companies Act, 2013.
• A minimum net worth of ₹2 crore has been prescribed.
• As per RBI norms, a maximum of two SROs will be recognized for the NBFC sector, and FIDC is one of them.
• Raman Agrawal is the CEO of FIDC and leads the organisation.

Impact and Expectations:

• Recognition of FIDC as an SRO will ensure strict regulatory compliance in the NBFC sector, enhancing stability and security in the financial system.
• The self-regulatory organisation will improve service quality, risk management, consumer protection, and financial inclusion.
• FIDC’s partnership with RBI will promote policy reforms and innovation in the sector.

Finance Industry Development Council (FIDC):

• FIDC is a 21-year-old organisation representing RBI-registered NBFCs, such as asset financing and loan financing companies.
• It includes almost all major NBFCs across the country (approximately 400 members). Its headquarters is in Mumbai, and the current CEO is Raman Agrawal.
• FIDC’s objectives include advocating for the NBFC sector, providing policy suggestions, and promoting best practices among members.

Self-Regulatory Organisation (SRO):

• An SRO is an industry-based organisation that operates in partnership with the regulator (RBI).
• It enforces a code of conduct for its members, ensures compliance, resolves disputes, and identifies early warning signals.
• RBI’s framework is designed to promote self-regulation in financial markets and reduce the burden on the central regulator.