Mint Explainer: Why are the RBI and FM telling non-bank lenders to be cautious?
Nirmala Sitharaman said on Thursday that non-bank financial companies (NBFCs) and small finance banks should be cautious while lending. The previous day, RBI governor Shaktikanta Das said these lenders should diversify their sources of funding and not rely too much on bank loans. Mint looks at why the minister and the regulator are cautioning NBFCs.
Bank credit is the primary source of borrowing for non-bank lenders. It constituted 41.2% of total borrowings as of 31 March 2023, according to data from the RBI. Although this was lower than the 41.4% recorded on 31 December 2022, it was higher than the 39.6% recorded on 31 March 2022.
Market borrowings are the second largest source, accounting for 38.8% of total borrowings in March 2023, down from 41% in March 2022. Bank loans to NBFCs increased at a compound annual growth rate (CAGR) of 18% in the past five years to ₹12.3 trillion in September, according to a note by Crisil Ratings. RBI governor Das had earlier highlighted this in his meeting with the heads of large non-bank lenders in August.
NBFCs saw an improvement in asset quality and capital ratios in the second half of FY23. RBI data showed the capital adequacy ratio of the sector increased 150 basis points to 27.5% between September 2022 and March 2023. The gross non-performing asset (NPA) ratio of NBFCs fell 160 bps to 3.8% in the same period.
Moreover, special-mention accounts, or loans on which repayments are delayed but are yet to turn sour, contracted 470 bps in the same period, according to the RBI’s Financial Stability Report. The RBI seems to be cautioning NBFCs and trying to wean them off bank loans to avert contagion in a financial system that is becoming ever more interconnected. NBFCs, Das said, are
. Read more on livemint.com
