The growth seen in non-banking finance companies (NBFCs) cannot come be at the cost of procedure, Ashish Madhorao More, IAS, Joint Secretary, Ministry of Finance, Government of India said at an event organised by ASSOCHAM on Thursday
“In essence, responsible lending must be the cornerstone of all credit activity. This will not only reduce intermediation costs and improve customer experience but also foster stronger collaboration with banks under co-lending frameworks. This model of risk sharing and synergy will be the key to extending credit to underserved sectors and areas,” he said.
While the Reserve Bank of Indian has increased its regulatory oversight on NBFCs making it more transparent and robust, compliance with the evolving norms remains a challenge, especially for smaller entities.
“We are committed to working with the regulator to ensure that compliance is proportionate and supported,” More said. He said that the focus must be to ensure that NBFCs are not only compliant but also competitive and future-ready.
Former chairperson of SBI
Speaking at the same event, Dinesh Khara, former chairperson of State Bank of India highlighted several risks for the segments such as interest rate risk, hedging risk and contagion risk. Also, with the share of gold loans increasing in the NBFC book, Khara said that with such loans there is always an operational risk associated with it. “If it is simple, then we have to be careful.”
NBFCs rely on bank funding
In terms of funding requirement, the reliance of NBFCs on bank funding decreased over the past year as the impact of higher risk weights on bank lending to NBFCs became apparent. Care Ratings Senior Director Sanjay Agarwal said that banks continue to form a major source of funding for the sector however, its share in AAA and AA rated NBFCs is expected to reduce.
“We expect from FY26 onwards at least in the AAA and the AA plus categories the banking system exposure will go down and they will go to bonds and overseas markets. However, for the AA- and below NBFCs, the banking system will continue to remain a dominant partner since alternate leverage available is very costly,” Agarwal said.