Uncharacteristic of NBFCs to seek bank licences: RBI DG

Reserve Bank of India (RBI) deputy governor Rajeshwar Rao on Friday said it is “uncharacteristic” of non-bank lenders (NBFCs) to seek bank licences, given the regulatory advantages they enjoy. Regulations for even top-tier NBFCs are not at par with universal banks, he said.

“NBFCs have evolved as niche companies serving specific economic functions, and it is uncharacteristic of them to demand becoming like a bank,” Rao said at an event, organised by the Confederation of Indian Industry.

Rao told NBFCs to be mindful of their underwriting practices and risks emerging from lending concentrated in one segment. “While the ease and convenience for a borrower is very important, this should not come at the cost of underwriting standards. NBFCs must focus on maintaining the quality of their loan portfolio.”

The regulatory advantages that NBFCs enjoy include easier or no entry and exit barrier, lower initial capital requirement of Rs 10 crore versus Rs 1,000 crore for a universal bank and no restrictions on the operations front while a bank has to get branch authorisations. “What I would like to emphasize is that the regulations for NBFCs, especially in the upper layer, are much more calibrated, but are not certainly at par with the regulations applicable to banks,” Rao said.

Bajaj Finserv managing director and chief executive officer Sanjiv Bajaj recently raised the issue of banking licences to NBFCs. Bajaj had said bank licences can be considered for NBFCs that have met compliance requirements, and proved themselves for 10 years.

The RBI is very clear in not allowing more NBFCs to accept deposits, and not a single new licence has been issued in recent years, Rao said. The number of deposit-accepting NBFCs has fallen to 26 from over 200.

The deputy governor also pulled up microfinance companies for charging disproportionately high interest rates. “We are not oblivious to the misuse of the freedom provided to the microfinance sector and irresponsible practices of some of the entities do put pressure to act against them,” Rao said.