MUMBAI: RBI deputy governor M Rajeshwar Rao said that large finance companies retain certain advantages over banks and face comparatively lighter regulation due to RBI’s nuanced regulatory approach.
Rao, who was refuting criticism that finance companies were being regulated on a par with banks, said that NBFC have a less stringent regulatory framework. The deputy governor said that NBFCs here have bucked the global trend of contraction and grown to control a significant chunk of the country’s loans.
In a speech titled ‘No more a shadow (of a) bank’ at a summit organised by the Confederation of Indian Industry here, Rao said, “Globally, the non-bank financial intermediation sector has shrunk by 3% in 2022, while in India have expanded by about 10%, the highest among all economic categories monitored by the Financial Stability Board.”
The deputy governor noted concern areas, particularly in NBFC peer-to-peer lending, where most of the lenders were individuals. He also raised the issue of NBFCs being overdependent on banks for funds and lax underwriting standards in a bid to grow fast. “It’s time that the NBFC sector comes out of its own shadow as well as that of the banking sector,” said Rao.
Rao noted India’s position as one of the few countries experiencing an increase in share of total financial assets held by NBFCs. “As of March 2023, NBFCs accounted for 12.6% of the credit to GDP ratio and constituted 18.7% of banking sector assets, marking a substantial increase from 13% a decade ago,” he said.
