The Reserve Bank has announced setting up of a working group to examine issues pertaining to regulation of the NBFCs (Non-banking Finance Companies) sector, including their governance and supervision.

The Group to be headed by former Deputy Governor Usha Thorat, who is presently Director of Centre for Advanced Financial Research and Learning (CAFRAL), will focus on the definition and classification of NBFCs, addressing regulatory gaps and regulatory arbitrage.

It has also been asked to focus on maintaining standards of governance in the sector and appropriate approach to NBFC supervision, the RBI said in a statement on Monday.

“The NBFC sector in India has undergone a significant transformation in the past few years and has come to be recognised as a systemically important element of the financial system,” it said.

The recent global financial crisis also highlighted the regulatory imperatives concerning the non-banking financial sector and the risks arising from regulatory gaps, arbitrage and systemic inter-connectedness.

“A need was, therefore, felt to reflect on the broad principles that underpin the regulatory architecture for NBFCs, keeping in view the economic role and heterogeneity of this sector and the recent international experience,” the apex bank said.

The scope of examination by the Group will, however, be within the current legislative framework, it added.

Other members of the Group include Sanjay Labroo, Director, Central Board, Reserve Bank of India, Bharat Doshi, Executive Director, Mahindra & Mahindra and Pratip Kar, Director, Globsyn Business School.

Uma Subramaniam, Chief General Manager-in-Charge, Department of Non-Banking Supervision will be the Member-Secretary.