Regulation of Non-Banking Finance Companies in India was considered necessary as far back as the sixties as a corollary to the monetary and credit policy of the country and protection of depositors’ interest. Statutory powers for the regulation of the segment were given to the Reserve Bank through the RBI (Amendment) Act in January 1997.
The initial focus of the Reserve Bank was on depositor protection and stringent regulatory requirements were put in place for deposit taking entities. With the growth of the financial system, the focus shifted to non-deposit taking entities which could pose systemic risks on account of their interaction with the formal banking system and market based financing.