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Resilience of India's NBFC Sector
Context
The non-banking financial companies (NBFC) sector in India continues to show strong performance under the scale-based regulations (SBR) framework, demonstrating improved asset quality and diversified funding sources, according to recent insights from the Reserve Bank of India (RBI).
Key Highlights from RBI's Review
- Credit Growth and Asset Quality: As of December 2023, the NBFC sector has maintained double-digit credit growth, with a low delinquency ratio.
- The gross non-performing asset (GNPA) ratio has significantly improved, dropping from 4% for government NBFCs and 10.6% for non-government NBFCs in December 2021 to 2.4% and 6.3%, respectively, by December 2023.
- Profitability Metrics: The sector has seen a consistent rise in profitability, reflected in improved return on assets (RoA) and return on equity (RoE).
- Prompt Corrective Action (PCA) Framework: The extension of PCA norms to government-owned NBFCs, effective from October 1, 2024, aims to enhance financial discipline. Key areas of focus will be capital adequacy and asset quality.
- Diversification of Funding: With increasing risk weights on bank lending, NBFCs are diversifying their funding sources to lessen reliance on bank borrowings. This strategy is vital for maintaining financial stability.
- Growth in Retail Credit: There has been robust growth in secured retail credit, particularly in areas such as gold loans, vehicle loans, and housing loans, alongside expansion in the industrial and service sectors.
Non-Banking Financial Companies (NBFCs)
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