Disciplining NBFCs

RBI's draft rules will help reboot the sector

The Reserve Bank of India’s (RBI’s) proposal to introduce liquidity buffers for non-banking financial companies (NBFCs) may restrict their ability to lend, but this short-term pain is necessary to make the sector more responsible. NBFCs did play a critical role by partially filling the vacuum created by the trouble in public sector banks (PSBs) and increasing their geographical reach via swift adoption of new technologies. As a result, the share of NBFCs in total loans rose to 23 per cent in FY19 from just 13 per cent in FY12 — a period that saw a sharp erosion in PSB lending.