RBI Urges NBFCs: Prioritize Asset Quality Over Loan Growth

Mumbai, Sep 3 (PTI) Reserve Bank Deputy Governor S C Murmu on Thursday asked non-bank finance companies (NBFCs) to ensure that the acceleration in loan growth does not come at the cost of asset quality concerns.

Addressing an event by industry grouping CII here, Murmu asked the non-bank lenders to also focus on other aspects including liquidity management, fair conduct, grievance redressal and responsible lending.

"As credit growth speeds up, so does the risk to asset quality... Let me be clear, growth must never come at the cost of underwriting standards," Murmu said.

He asked NBFCs to do "rigorous" stress testing, early warning systems, and dynamic provisioning, and also invest in artificial intelligence and machine learning tools for early warnings on borrower stress.

Underlining the importance of NBFCs and housing finance companies (HFCs) for our system, the career central banker said the financial sector is changing fast, and the non-bank lenders extending credit to the last mile by serving the underserved are no longer on the sidelines of this story.

He said NBFC credit is above 16.7 per cent of nominal GDP, up from 15.9 per cent a year earlier, and it is about 27 per cent of the credit extended by scheduled commercial banks, up from 26 per cent a year ago.


However, there are challenges which entities in the sector need to confront, he said, pointing towards the need to have strong governance and culture.

Boards and senior management must build a culture of sustained compliance and ethics, he added.

The DG also asked entities to focus on cyber resilience, reminding that risks on this front go up with greater digitalisation.

Customer protection also needs to be paid adequate attention, Murmu said, adding that conduct regulation, grievance redressal, and responsible lending remain "top priorities" for the RBI.

He also affirmed the RBI's commitment to encourage innovation and made it clear that the central bank will support responsible growth.

Meanwhile, speaking at the same summit, Hero Fincorp's chief executive and managing director Abhimanyu Munjal highlighted the need for deeper bond and pass through certificates markets to reduce reliance on bank funding for the NBFCs.

He also pitched for a review of the external commercial borrowing (ECB) norms to enable greater access to global capital for NBFCs, including through the GIFT City.