Reserve Bank of India and the top NBFCs and HFCs (housing finance companies) of the country discussed issues such as unsecured retail loans and increasing reliance on bank borrowings in a meeting held on Friday.
The discussions between Governor Shaktikanta Das and MD and CEOs of Upper Layer NBFCs and HCs, and select government NBFCs, entailed diversifying the resources for these lenders to contain the increasing reliance on bank borrowings, and risks associated with high credit growth in the unsecured retail segment.
Banks’ exposure to NBFCs has risen 35.1 per cent on-year to ₹14.2 lakh crore as of June 2023, as per latest RBI data. In turn, NBFCs’ share in overall bank credit increased to 9.9 per cent from 8.5 per cent a year ago. This has raised concerns regarding the rise in banks’ indirect exposure to the unsecured segment which has been driving growth for NBFCs.
‘Avoid complacency’
While appreciating the improved financial health and operational resilience of NBFCs and HFCs, Das advised that they need to remain alert “to avoid any complacency during good times”. He also highlighted the need for strengthening governance standards and assurance mechanisms with respect to Compliance, Risk management and Internal audits.
Other issues discussed were upgradation of IT systems and cyber security, strengthening provisioning covers, monitoring of stressed exposures and slippages, liquidity and asset-liability management, and reasonableness and transparency in credit pricing.
The NBFCs and HFCs involved constitute nearly 50 per cent of the total assets of NBFCs including HFCs, RBI said. Deputy Governors M. Rajeshwar Rao and Swaminathan J., NHB MD S. K. Hota, and a few senior RBI officials were also part of the discussions.