RBI guv Shaktikanta Das asks NBFCs to reduce reliance on bank borrowing

Cautions on risk with unsecured lending; Remain alert against complacency

The Reserve Bank of India (RBI) has directed non-banking finance companies (NBFCs), including housing finance companies (HFCs), to limit the increase in reliance on bank borrowing and has issued a caution regarding the risks associated with the growth of unsecured retail loans.

Reserve Bank of India Governor Shaktikanta Das, along with other senior officials including Deputy Governors Rajeshwar Rao and Swaminathan J., and Managing Director of the National Housing Bank (NHB), S. K. Hota, met with the heads of select NBFCs, including HFCs, on Friday. These NBFCs account for nearly 50 per cent of the total assets of all NBFCs, including HFCs, according to a statement by the RBI.

According to RBI data, bank borrowings of NBFCs are growing at a fast pace in the last few years. NBFCs bank borrowing grew by 26.4% year on year till September 30 2022. The growth was 16.7% as on March 2022.

"While acknowledging the important role played by the sector in delivering credit to the unbanked and underserved areas, the Governor advised that the NBFCs and HFCs need to remain alert to avoid any complacency during good times," the statement read.

RBI officials discussed how to diversify the resources of NBFCs and HFCs, so as to contain the increase in reliance on bank borrowings. Another significant issue that was addressed pertained to the risks associated with high credit growth in the retail segment, particularly unsecured loans.

Although overall NBFC credit to the retail sector grew by only 5 per cent year-on-year in March 2022, consumer loans saw a growth of 33.9 per cent, while the other non-food loan category grew by 25.5 per cent. The total growth of gross advances was 7.6 per cent until March 2022.

The meeting also covered other issues such as prioritising the upgrading of IT systems and cybersecurity; strengthening balance sheets with improved provisioning cover; monitoring of stressed exposures and slippages; ensuring robust liquidity and asset-liability management; ensuring reasonableness and transparency in the pricing of credit; and adhering to the Fair Practices Code, including implementing a robust grievance redress mechanism, the statement noted.

"The Governor in his opening remarks complimented the NBFCs and HFCs for their improved financial health and operational resilience in recent years," the RBI said.