Why has the RBI called up on large NBFCs like HDFC and Bajaj Finance to convert to banks?

Let me clarify, this is not the RBI suggestion but the deputy governor, Rajeshwar Rao, suggestion in his personal capacity. This view is based on the perception that large non banking financial companies should be regulated exactly like banks to preserve financial stability.

That is because very large NBFCs can also pose a systemic risk like banks if they have massive amounts in public deposits or loans from financial institutio8ns etc. This would make the financial sector sound, resilient and better regulated.

He was averse to the regulatory arbitrage enjoyed by certain NBFCs. His view was that such NBFCs should either shrink their balance sheets or be regulated like banks, which is actually a reasonable suggestion.