MUMBAI: Non-banking financial companies (NBFCs) are expected to grow further, helped by an increase in the pace of revival and vaccination in the economy. reserve Bank of India ,reserve Bank of India) in its report on Trends and Progress of Banking in India in 2020-21.
The report released on Tuesday said that the pandemic has tested the resilience of NBFCs, but so far, the sector strengthened with reasonable balance sheet growth, increased credit intermediation, higher capital, lower delinquency ratio and increased liquidity cushion Is.
“With the increasing pace of vaccination and the broader revival of the economy, the NBFC sector is expected to boom,” the report said.
The financial system is maturing from a bank-dominated space to a hybrid one, with non-bank intermediaries gaining prominence. It added that the growth in this sector in 2020-21 is a harbinger of even brighter prospects in the years to come.
It said various post-pandemic policies ensured liquidity support, moratoriums and asset classification eased financial conditions and gave NBFCs ample time to extend credit to productive sectors to take advantage of their grassroots shocks and leverage. and given to revive. Development.
Many NBFCs have adopted a robust credit risk assessment framework to ensure the quality of credit creation.
In October 2021, the RBI introduced scale-based regulation to increase regulatory oversight on the sector. In order to further strengthen the supervisory tools applicable to NBFCs, it has issued a Prompt Corrective Action Framework for NBFCs, with effect from October 2022, the report said.
The recent amendment to the Factoring Regulation Act may encourage all NBFCs to promote the MSME (Micro, Small and Medium Enterprises) sector, it said.
Many NBFCs have used this pandemic to revamp their business models, making them realize the power of data analytics and big data in business applications. In this regard, many have tied up with fintech firms to take advantage of technological innovations.
However, the report said NBFCs need to be better equipped and focus on cyber fraud prevention.
It said that the recent act of RBI to supersede the boards of NBFCs that have failed to repay loans is proof that the regulator has taken due diligence on the sector to protect the interests of the stakeholders and prevent adverse impact on the financial system. Is.
In October this year, the RBI superseded the boards of Srei Infrastructure Finance Limited (SIFL) and Srei Equipment Finance Limited (SEFL). Later in November, the central bank also superseded the board of Reliance Capital Limited (RCL). Both companies are facing insolvency proceedings.
The report said that on loan disbursement, 57 NBFCs, each with a loan book of over Rs 5,000 crore, lent 90.1 per cent of the total loans disbursed in 2020-21.
Small NBFCs (asset size of less than Rs 500 crore) are numerous but account for only 0.9 per cent of total NBFC credit outstanding.
The report noted that the industry continued to be the largest recipient of loans given by the NBFC sector, followed by retail loans and services.
The report said that HFCs (housing finance companies) have also taken several proactive steps to counter the impact of COVID-19 and do business during the lockdown by resorting to digitally enabled services for sourcing, processing and loan disbursement. continuity is ensured.
Going forward, affordable housing finance has great potential, given the growing population and low-penetration market, the report said.
The report released on Tuesday said that the pandemic has tested the resilience of NBFCs, but so far, the sector strengthened with reasonable balance sheet growth, increased credit intermediation, higher capital, lower delinquency ratio and increased liquidity cushion Is.
“With the increasing pace of vaccination and the broader revival of the economy, the NBFC sector is expected to boom,” the report said.
The financial system is maturing from a bank-dominated space to a hybrid one, with non-bank intermediaries gaining prominence. It added that the growth in this sector in 2020-21 is a harbinger of even brighter prospects in the years to come.
It said various post-pandemic policies ensured liquidity support, moratoriums and asset classification eased financial conditions and gave NBFCs ample time to extend credit to productive sectors to take advantage of their grassroots shocks and leverage. and given to revive. Development.
Many NBFCs have adopted a robust credit risk assessment framework to ensure the quality of credit creation.
In October 2021, the RBI introduced scale-based regulation to increase regulatory oversight on the sector. In order to further strengthen the supervisory tools applicable to NBFCs, it has issued a Prompt Corrective Action Framework for NBFCs, with effect from October 2022, the report said.
The recent amendment to the Factoring Regulation Act may encourage all NBFCs to promote the MSME (Micro, Small and Medium Enterprises) sector, it said.
Many NBFCs have used this pandemic to revamp their business models, making them realize the power of data analytics and big data in business applications. In this regard, many have tied up with fintech firms to take advantage of technological innovations.
However, the report said NBFCs need to be better equipped and focus on cyber fraud prevention.
It said that the recent act of RBI to supersede the boards of NBFCs that have failed to repay loans is proof that the regulator has taken due diligence on the sector to protect the interests of the stakeholders and prevent adverse impact on the financial system. Is.
In October this year, the RBI superseded the boards of Srei Infrastructure Finance Limited (SIFL) and Srei Equipment Finance Limited (SEFL). Later in November, the central bank also superseded the board of Reliance Capital Limited (RCL). Both companies are facing insolvency proceedings.
The report said that on loan disbursement, 57 NBFCs, each with a loan book of over Rs 5,000 crore, lent 90.1 per cent of the total loans disbursed in 2020-21.
Small NBFCs (asset size of less than Rs 500 crore) are numerous but account for only 0.9 per cent of total NBFC credit outstanding.
The report noted that the industry continued to be the largest recipient of loans given by the NBFC sector, followed by retail loans and services.
The report said that HFCs (housing finance companies) have also taken several proactive steps to counter the impact of COVID-19 and do business during the lockdown by resorting to digitally enabled services for sourcing, processing and loan disbursement. continuity is ensured.
Going forward, affordable housing finance has great potential, given the growing population and low-penetration market, the report said.
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