 "NBFCs")
Non-banking financial companies (NBFCs) need to diversify funding sources and reduce excessive reliance on banks as they pursue steady growth in loan book with robust asset quality and capital position, according to a Reserve Bank of India (RBI) study.
NBFCs have been grouped into four categories — base, middle, upper and top. This is based on their size, activity and perceived level of risk in terms of scale-based regulatory framework, which took effect from October 1, 2022.
NBFCs’ reliance on banks increased, particularly for NBFCs in the upper layer (NBFCs-UL), whose direct bank borrowings have grown steadily. They accounted for nearly half of their total borrowings at the end of December 2022.
Their reliance on banks steadily went up due to the low interest environment and lags in monetary policy transmission, according to study that appeared in Reserve Bank of India's September 2023 bulletin.
Their reliance on banks steadily went up due to the low interest environment and lags in monetary policy transmission, according to study that appeared in Reserve Bank of India's September 2023 bulletin.
Their reliance on banks steadily went up due to the low interest environment and lags in monetary policy transmission.
While NBFC-ULs overwhelmingly rely on secured borrowings, NBFC-middle layers (MLs) borrow significantly via unsecured means. This is particularly true for big, government NBFCs, over two thirds of whose borrowings are unsecured.
The consolidated balance sheet of the NBFC sector exhibited double-digit year-on-year (Y-o-Y) growth as on December 2022. They have shown varied trends in loan growth patterns.
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While the government-owned NBFCs primarily lend to infrastructure firms, privately-owned ones lend overwhelmingly to the retail segment, the report pointed out.
With economic recovery underway, non-performing assets (NPAs) of the sector as a per cent of total advances declined. It was on account of lower accretion of fresh NPAs and better recoveries.
Gross non-performing assets (gross NPAs) declined to 4.9 per cent in December 2022 from 5.4 per cent in March 2022. Net NPAs also dipped to 1.9 per cent in December 2022 from 2.4 per cent in March 2022.
NBFCs continue to maintain a strong capital position and adequate buffers. The sector — at an aggregate level — maintained a capital adequacy ratio (CAR) at 25.8 per cent. It was well above the regulatory requirement of 15 per cent in December 2022.
A higher CAR indicates a stronger financial position along with a lower default risk, the RBI study added.
