Finance Ministry on Thursday held wide-ranging consultations with the chief executives of top Non-Banking Finance Companies (NBFCs) on the issues and challenges before the sector and their implication for the financial system including banks.

Important topics

Important topics discussed include bank funding to NBFCs, Co-lending arrangements between banks and NBFCS; concerns of the government over governance in such entities, apprehension of contagion going from NBFCs to banks, data privacy and cybercrimes in the sector, sources said.

Also issues around lending rates of NBFCs and business practices of these entities were discussed, they added.

This meeting, which was Chaired by Department of Financial Services (DFS) Secretary Vivek Joshi, was the first formal meeting with the NBFC sector. 

During the meeting, presentations were made by the Finance Industry Development Council (FIDC), a representative body of NBFCs and Microfinance Institutions Network (MFIN), an association for the Microfinance sector in India.

The two and half hour long meeting was also attended by SBI Chairman Dinesh Kumar Khara, sources said. Chief executives and top officials of public sector NBFCs including PFC, REC and IREDA also attended the meeting.

Chief executives of five upper-layer NBFCs (Mahindra Financial Services, L&T Finance, Aditya Birla Finance, Bajaj Finance and Tata Capital) and five middle-layer NBFCs (MAS Financial, Godrej Capital, Sundaram Finance, Ugrow Capital and Paisalo digital) were invited for the meeting. The meeting was also attended by Umesh Revankar, Chairman of FIDC and Executive Vice Chairman of Shriram Finance.

The meeting also saw discussion to a limited extent around the RBI recent draft guidelines on project financing. It is likely that the NBFCs too will submit their views to the RBI on the draft guidelines by June 15, which is the last date fixed by the central bank for sending in inputs, sources said.

Some of the challenges and issues faced by the NBFC sector in India related to asset quality concerns, liquidity crunch, regulatory compliance, risk management, technology adoption, asset-liability mismatches, funding diversification and competition. 

Addressing these challenges requires a combination of regulatory support, prudent risk management practices, technological innovation, and strategic planning by NBFCs operating in India, industry observers said.