NBFCs SET FOR BIGGER PLAY

Despite hiccups such as IL&FS crisis and increase in risk weights, non-banking financial companies continue to make their presence felt.

- RAGHU MOHAN

IF THERE were lingering doubts about the role of non-banking financial companies (NBFCs), they were set to rest by M. Rajeshwar Rao, deputy governor of Reserve Bank of India (RBI), on February 9 this year. “It’s time the NBFC sector comes out of its own shadow as well as that of the banking sector. I am sure NBFCs will play a significant role in achieving the dream of a $5-trillion economy,” he said in a ringing endorsement of the business. He also referred to the Financial Stability Report of December 2023 which said that at end-March 2023, NBFC credit to GDP ratio was 12.6% and NBFC credit accounted for 18.7% of banking sector’s assets compared with 13% a decade ago. Rao is the senior-most deputy governor of RBI and in charge of its powerful department of regulation.

Yes, almost six years after the blowouts at Infrastructure Leasing & Financial Services (IL&FS) and the erstwhile Dewan Housing Finance Corporation (DHFL)— taken over by Piramal Capital and Housing—and regulatory changes since, NBFCs are back in business.

End of Misplaced Narrative

“There were no major issues at industry or systemic level. There have been periodic concerns at the individual firm level. Some NBFCs were not up to the mark on governance or had an aggressive business model,” says Vimal Bhandari, executive vice-chairman and chief executive officer (CEO), Arka Fincap.