And second, since private risk and sovereign risk are linked at the national level, it means that financial fragmentation takes place along national lines. That hampers the traction of monetary policy in the regions where monetary stimulus is most needed. None of this means we cannot fulfill our mandate. But it does mean we have to design our instruments to compensate for it.
However, in India, the scheme of regulation of non-banking financial companies (NBFCs) originated in mid-sixties when sudden upsurge in deposit mobilisation by Non-Banking Companies was noticed. The provisions of Chapter III B of the Reserve Bank of India Act, 1934, which regulated the deposit acceptance activities of NonBanking Companies has been in existence since mid-sixties.