Non-banking financial companies (NBFC) must further strengthen governance and internal audit standards, in-line with the implementation of scale-based regulations, the Reserve Bank of India (RBI) said in its latest report on the trend and progress of banking in India.
In the face of tightened liquidity and increased competition from banks in categories such as auto loans and loans against gold, NBFCs have focused on unsecured loans, microfinance loans, and micro, small, and medium-sized enterprise loans. In 2022-23 (April-March), non-bank lenders clocked a double-digit loan growth, with unsecured loans outpacing secured loans. However, unsecured loans rose 28.1% year-on-year(y-o-y), whereas secured loans rose 12% y-o-y in 2022-23.
Separately, credit growth by NBFCs to the MSME sector was more than triple that of banks, aided by their ability to offer customised financing solutions. The co-lending framework for priority sector lending has also facilitated the flow of credit to the MSME segment.
Further, NBFC credit to the vehicle loan segment also rose by double digits in 2022-23, as it emerged from the challenges of the Covid pandemic, the report said.
NBFCs are also a key provider of gold loans even as their growth has trailed banks. Credit to the services sector also remained strong. Microfinance institutions have outpaced banks in micro-credit disbursements.
Housing finance companies have around one-third of the market share in the housing finance segment, trailing only scheduled commercial banks. Housing finance businesses account for around one-third of the housing financing market.
Housing finance companies credit growth accelerated in 2022-23 due to the post-Covid shift in preference for homeownership, government initiatives to promote affordable housing, and attractive tax incentives.
As of March 2023, 72% of housing finance companies’ outstanding credit comprises housing loans. The gross non-performing asset ratio of NBFCs fell to 4.6% as of March 31, from 5.7% a year ago.
In recent years, RBI has adopted various measures to enhance oversight of NBFCs. In its latest move, RBI has increased the risk weights on select retail loans by non-bank lenders, and on bank loans to NBFCs.
While this measure will eat into the capital of financial services entities, the report contends that non-bank lenders remain well-capitalised with a healthy capital to risk-weighted assets ratio.