The RBI internal working group suggests that well-run large non-banking financial companies (NBFCs), with an asset size of Rs 50,000 crore and above, including those owned by corporate houses, may be considered for conversion into banks. This is subject to completion of 10 years of operations and meeting due diligence criteria and compliance with additional conditions specified in this regard.

This may be favourable for Shriram Transport Finance, which has been aspiring to turn itself into a bank after a failed merger with IDFC Bank two years back.

In the first week of November, RBI deputy governor M Rajeshwar Rao had said that NBFCs should have incentives either to convert into a commercial bank or scale down their network externalities within the financial system.

Rao, who is in charge of banking regulation and risk monitoring at RBI, called for a calibrated and graded regulatory framework for NBFCs in relation to their contribution to systemic significance. NBFCs with systemic risks must be identified and subjected to a higher degree of regulation.

This would make the financial sector sound and resilient while allowing a majority of NBFCs to continue under the regulation-light structure, Rao had said while addressing a virtual conference organised by Assocham.

Within the proportionality paradigm, one must deal with entities which neither belong to the critical ones in terms of systemic risk nor are they too small in scale and complexity.

"It is imperative to strike a balance between regulating the NBFCs more tightly and the need to provide them the required flexibility. This will remain the cornerstone while we imagine the future of regulation for NBFCs," Rao had said.