 "Consumer loans may be the next big headache for NBFCs: RBI report")
Chief executives of non-banking financial companies (NBFCs) have requested Reserve Bank of India (RBI) Governor Shaktikanta Das, during an interaction last month, to allow more such entities to accept public deposits.
The meeting was also attended by RBI Deputy Governors M Rajeshwar Rao and Swaminathan J, among others.
In the August 25 meeting, RBI officials pointed out that NBFCs needed to contain their increasing reliance on bank borrowings. In turn, the shadow bank chiefs requested the RBI to allow them to accept public deposits, which will help them to diversify their liabilities.
The RBI, as part of a deliberate policy, has been discouraging NBFCs from engaging in deposit mobilisation activities. This is for protecting depositors’ interests and fostering financial stability, the regulator had said in the annual ‘Trends and Progress’ report of 2014-2015.
Over the years, the number of deposit taking NBFCs has seen a sharp decline. From a high of 220 as of March 2015, the number of deposit taking NBFCs fell to 49 as of March 2022. The RBI has not allowed any new NBFC to accept public deposits for more than 15 years.
The number of systemically important, non-deposit taking NBFCs increased in recent years — from 263 as of March 2019 to 422 as of March 2022. “The regulator had indicated that NBFCs need to lower their dependence on bank borrowing. The chiefs of NBFCs said the route to accepting public deposits must be available to them,” said a source, who attended the interaction last month. NBFCs’ bank borrowings almost tripled since 2017 and have grown from Rs 3.13 trillion in March 2017 to Rs 9.24 trilion in September 2022. Public deposits form a small portion of NBFC liabilities. Such deposits have increased from Rs 30,600 crore in March 2017 to Rs 71,640 crore in September 2022.
There are 9,640 NBFCs as on July 31, 2022, including 95 housing finance companies.
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The deposits of NBFCs-D are not insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). Hence, the RBI has mandated that only investment grade NBFCs-D can accept fixed deposits from the public up to a limit of 1.5 times of their net-owned funds and for a tenure of 12 to 60 months only, with interest rates capped at 12.5 per cent, keeping depositors’ interest in view. In May 2022, it was mandated that the deposits of NBFCs shall have a minimum investment grade credit rating of ‘BBB–’ from any of the Sebi-registered credit rating agencies.
Ajay Piramal, chairman of the Piramal Group, told Business Standard last week the RBI had become conservative following the crisis in Dewan Housing Finance Corporation and PMC Bank. The RBI had observed that over the years, the NBFC sector in India has made rapid strides, furthering financial inclusion by offering tailored financial products to segments underserved by banks. “In recent years, however, many NBFCs have assumed systemic significance with inter-linkages across the financial system.
In keeping with the principle of proportionality, the Reserve Bank recently introduced scale-based regulation (SBR) for NBFCs, thereby narrowing the regulatory arbitrage between banks and large NBFCs while preserving operational flexibility,” the RBI said while explaining why bigger shadow banks are treated with equal degree of regulation as banks.
The RBI analysis of supervisory data revealed that NBFCs residing in the middle and upper layers account for almost 95 per cent of the total assets and may pose a systemic risk.
