The Reserve Bank of India’s panel on financial services for small business and low-income households has advised replacing the multi-category classification of non-banking financial companies (NBFCs) with a two-category structure. The panel headed by Nachiket Mor says NBFCs should be classified as either core investment companies and another category for all others. It has asked RBI to revisit priority sector lending (PSL) definitions, to enable the gradual transition of NBFCs to wholesale consumer banks or wholesale investment banks or national banks. There should be a provision in the Banking Regulation Act to allow this, it has said. Benefits such as tax sops or bank limits previously available to specific NBFC types (such as asset finance or infrastructure finance units) should continue even after consolidation. The panel has also suggested regulatory convergence between banks and NBFCs on the principle of neutrality for classification of non-performing assets and using the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act. For addressing wholesale funding constraints faced by NBFCs, it said RBI and the Securities and Exchange Board of India should develop a framework for Qualified Institutional Buyers and Accredited Individual Investors to participate in debt market issuances.