Dr Sathyan David, former Chief General Manager of the Reserve Bank of India (RBI), discussed key trends and challenges within India’s banking sector, highlighting historical lending practices and the impact of recent events on the financial ecosystem.
Speaking at the ETBFSI NBFC Connect’24 Summit in Chennai, Dr David drew parallels between ancient lending practices and modern Buy Now Pay Later (BNPL) arrangements, stating: “BNPL, which we call now, have been going on when there were Guptas and Mauryas, as lending to small borrowers at high interest rates has been happening for years.”
He highlighted the transformative effect of the COVID-19 pandemic on lending, noting the shift towards digitisation: “During Covid, all activity came to a standstill; digitisation took off, turning common DSAs into LSPs, and online credit underwriting accelerated.”
Bank, NBFC collaboration
Discussing the collaboration between banks and Non-Banking Financial Companies (NBFCs), Dr David said: “Banks’ collaboration with NBFCs took off; a lot of co-lending started happening.”
Dr David addressed the challenges posed by the collapse of major financial institutions like IIFL, stating: “With IIFL collapsing, the effect in the system was much larger than anticipated. Liquidity seized up, and trust among lenders eroded.”
He emphasised the regulatory scrutiny surrounding IIFL and similar entities, stating: “It had been on RBI’s radar since 2015.”
Regarding the current state of consumer finance, he said, “Consumer finance is slowly picking up, exceeding 30%, while corporate finance has decreased significantly.”The former RBI official underscored the importance of regulatory oversight in maintaining financial stability: “RBI is keeping track; if there’s any problem, these segments will freeze up.”
