News

NBFCs Adapt to Regulatory Changes and Expand Funding Sources

The Non-Banking Financial Company (NBFC) sector in India is adapting to new regulatory challenges and market shifts. Due to the Reserve Bank of India's (RBI) decision to raise risk weights on bank borrowings for NBFCs, these companies are increasingly diversifying their funding strategies. This shift is leading NBFCs to explore bond markets and debenture issues to meet their funding needs​

Gold Loan Demand Remains Strong

Despite curbs on cash disbursements, NBFCs specializing in gold loans continue to see strong demand, supported by favorable movements in gold prices. This trend has helped gold loan NBFCs maintain growth in the current financial environment​

Funding Constraints for NBFCs

According to ICRA, after two years of strong growth, NBFCs are expected to face significant challenges due to funding constraints. The sector's assets under management (AUM) are projected to exceed ₹50 trillion in the current financial year, but further expansion may be hindered due to limited access to funds

NBFC Growth Challenges

Reports indicate that NBFC growth may face hurdles as banks are becoming more reluctant to fund these institutions. As of September 2023, banks accounted for 37.8% of NBFC borrowings, but this reliance is becoming a potential risk​

RBI Tightens HFC Norms

The Reserve Bank of India (RBI) has introduced stricter regulations for Housing Finance Companies (HFCs) to align them more closely with NBFCs. The ceiling on public deposits that HFCs can hold has been reduced from three times to 1.5 times their net owned fund. Additionally, HFCs will now need to maintain a higher percentage of liquid assets against public deposits​

Self-Regulatory Organizations (SROs)

The RBI is inviting applications for the recognition of two Self-Regulatory Organizations (SROs) within the NBFC sector. This move aims to enhance self-regulation within the industry, promoting better standards and practices​

Regulatory Updates:

The Reserve Bank of India (RBI) has released its updated list of NBFCs classified under the upper layer (NBFC-UL) as part of its scale-based regulation framework. This classification involves stricter regulatory oversight due to the systemic importance of these companies. The list includes major players like LIC Housing Finance, Bajaj Finance, Shriram Finance, and others​

Budget 2024: Implications for NBFCs and MSMEs

The upcoming Union Budget 2024 has generated significant interest among industry stakeholders, particularly regarding support for NBFCs and the Micro, Small, and Medium Enterprises (MSME) sector. Shachindra Nath, MD of UGRO Capital, emphasized the importance of addressing challenges faced by NBFCs to bolster MSME support. Nath advocated for creating a new category of NBFCs dedicated to Priority Sector Lending (PSL), which would focus 85% of their assets under management on the priority sector. This proposal aims to enhance funding avenues for MSMEs and streamline financial support​.

Regulatory Developments and Strategic Investments

The regulatory landscape for NBFCs has seen notable changes. The Reserve Bank of India (RBI) continues to refine its regulatory framework, emphasizing the interconnectedness of banks and NBFCs, which poses systemic risks. To mitigate these risks, the RBI has proposed strong regulatory standards and is inviting applications for self-regulatory organizations (SROs) within the NBFC sector​

Challenges and Opportunities

Despite the positive trends, NBFCs face ongoing challenges, particularly in regulatory compliance and funding. The sector's interconnectedness with banks necessitates stringent oversight to prevent systemic risks. The RBI's push for SROs aims to enhance self-regulation and ensure adherence to best practices within the industry. Opportunities for growth are abundant, especially with the government's focus on MSMEs and infrastructure development. The anticipated policy measures in the Union Budget 2024, such as the potential reintroduction of the Partial Credit Guarantee Scheme (PCGS) for NBFC-MSMEs, could significantly bolster the sector. This scheme would provide a portfolio guarantee for the purchase of bonds or commercial papers issued by NBFC-MSMEs, thereby enhancing their access to funding​

Conference for Non-Banking Financial Companies' (NBFCs') Heads of Assurance Departments

The Chief Compliance Officers, Chief Risk Officers, and Heads of Internal Audit of a select group of Non-Banking Financial Companies (NBFCs) attended a conference today in Mumbai hosted by the Reserve Bank. Approximately 280 people, representing more than 100 NBFCs, attended the conference. This seminar, themed "Resilient Financial System - Role of Effective Assurance Functions," is one of the supervisory engagements that the Reserve Bank has been holding with its Regulated Entities over the past year. Earlier in January 2024, the Conference for the Heads of Assurance Functions of Scheduled Commercial Banks took place as part of this series.

With co-lending AUM approaching ₹1 lakh crore, NBFC expects medium-term growth of 35–40%

Five years after the co-lending model's inception, assets managed by NBFCs are getting close to ₹1 trillion in value. According to a note from Crisil, "growth momentum is seen healthy at 35-40 per cent annually over the medium term, amidst rising interests of partners – NBFCs and banks." It also added that, given the higher risk weights associated with personal loans, these partners are likely to increase their focus on other asset classes, like MSME and home loans.

Loan and deposit rates are increased by banks and NBFCs while the RBI promotes monetary transmission.

The central bank has recently demanded that banks and NBFCs receive a greater transmission of monetary policy in the form of rate increases. Transmission is crucial to the RBI's ability to control inflation.

As risk aversion sets in, small NBFCs may resort to SME, mortgage, and green financing loans in the co-lending market.

According to data from CRISIL and a few NBFC executives, co-lending to personal loans would decline this year. RBI's shifting risk weights for consumer and personal loans are making banks and NBFCs take a closer look at MSMEs.

Diversifying the funding strategy of NBFCs is necessary.

Investors will be more confident in the government's proposal to establish a ₹300 billion backstop fund to offer liquidity during difficult times. In addition to being big NCD subscribers, banks have been leading the charge in providing loans to NBFCs. Mutual funds, corporate treasuries, insurance firms, pension and provident funds, and others are also investors. Mutual, pension, and provident funds, on the other hand, feel more at ease investing in higher-rated papers in the AA and AAA categories. Investor confidence will rise as a result of the government's proposal to establish a ₹300 billion backstop fund to supply liquidity during difficult periods. This will also stabilize the market.

NBFC-P2Ps minimize risks; certain business activities defy accepted standards

According to Reserve Bank of India Deputy Governor M Rajeshwar Rao, some NBFC-P2P (peer-to-peer) lenders' business practices don't seem to be in compliance with regulatory standards, and these lenders have been downplaying certain business risks. Additionally, he rebuffed the NBFCs' persistent calls to become banks, stating that it is unusual for them to desire to become like banks because NBFCs have developed into specialty businesses fulfilling particular economic responsibilities.

The head of RBI notes unusual increases in personal loans and exposure to NBFCs.

Due to the RBI's requirement to do liquidity infusion/absorption procedures often twice a day, liquidity risk management also becomes extremely important. The chiefs of public sector banks and a few private sector banks were briefed by RBI top brass on a number of important problems, including the anomalous growth in personal loans and exposure to non-banking financing firms (NBFCs).

RBI might loosen evergreening requirements for AIFs with strategic importance

The Reserve Bank of India may carve out funds that are strategically significant from the limitations set by the December evergreening circular. This could include any new funds that the government launches in the future or deems to be "strategically important," as well as NIIF funds, SIDBI Fund of Funds, SBICap Venture's Self Reliant India Fund (SRI), and SWAMIH Investment Fund (SIF).

RBI deputy governor flags business risks for NBFCs

Addressing a NBFC summit organised by the Confederation of Indian Industry (CII) Rao said though total assets of NBFCs have increased to 18.7% of the banking sector assets from 13% a decade ago, there are certain risks in their business models or balance sheets which need to be monitored for necessary actions.

Why a new NBFC as guarantor for lower-rated infra bonds won’t help

The introduction of another government-backed NBFC raises concerns about the redundancy of such entities and their questionable effectiveness. Infrastructure finance can be raised much better through market-based mechanisms

RBI deputy governor Rajeshwar Rao cautions NBFCs on P2P lending practices

The Reserve Bank of India (RBI) deputy governor M Rajeshwar Rao has cautioned non-banking finance companies (NBFCs) on peer-to-peer lending, saying the regulator has observed certain business practices that do not appear to be in line with its guidelines. Any breach of licensing conditions and regulatory guidelines is non-acceptable, he said. The warning comes days after the RBI imposed business restrictions on Paytm Payments Bank.

Nitstone Finserv announces TCS as Technology Partner

Nitstone Finserv to raise ₹150 crore for Growth

Bangalore-based non-banking finance company, Nitstone Finserv plans to raise fresh funding of ₹150 crore from new investors.

Business Today: Nitstone Finserv Hires Ex-Foreign Banker as Strategic Finance Head

Nitstone Finserv, a Bangalore-headquartered NBFC, which focuses on digital and physical lending platform facilitating quick and hassle-free loans, has appointed Mr. Bosco Caldeira as its Senior Vice President - Head of Strategic Finance and Global Alliances.

Nitstone Finserv Opens its First Retail Branch

Nitstone Finserv, a Bengaluru - India headquartered NBFC, announced today the opening of its first retail branch. With this endeavour, Nitstone is focusing on improving its professional efficiency by providing services both online and offline and aiming to provide the best customer experience at the branch.

Nitstone Finserv Ropes in New Directors

Nitstone Finserv, a digital lending platform which facilitates quick and hassle-free loans has obtained approval to start operations of NBFC Business in India. The firm has announced appointment of 3 new independent Directors to the Board of Directors; Thomas T. Riley, Alok Kumar Misra and Vishwanath Prasad Singh.

Nitstone Finserv to Commence NBFC Operations

Nitstone Finserv announced today that they got RBI approval to operate NBFC, which will help promote inclusive growth in the country, by catering to the diverse financial needs of various segments of the society. Headquartered in Bengaluru, Nitstone plans to commence business in Bengaluru, followed by branches in Pune, Hyderabad, Chennai during the current financial year and has a nationwide expansion plan in coming years.

It's booming biz for India's NBFCs

Indian banks' struggles with bad loans over the past three years have opened an opportunity to ramp up lending for so-called non-banking financial companies (NBFC's), which are not as strictly regulated as banks. With their share of total credit rising, new players and new investors have piled into the NBFC market.

Big PE's, NBFC's eye low-cost housing

Large private equity firms and non-banking finance companies are now getting interested in affordable housing, thanks to the government’s recent incentives for this segment, including infrastructure status and speedy approvals. This segment was financed by funds with smaller ticket size which specialized only in affordable housing.

Why foreign bankers rush for NBFC jobs?

India may be talking of job creations, but the country's top financial services companies, including Motilal OswalBSE 1.31 %, IIFL, EdelweissBSE 1.14 % and CentrumBSE 1.77 %, have tapped top to mid-level foreign bankers to boost their wealth and asset management businesses this year. The so-called foreign bank jobs are no more the flavour of the day.

RBI issues rules for NBFCs

The Reserve Bank of India has issued 'know your customer' guidelines for non-banking financial companies, which are similar to those for commercial banks. The board of directors of NBFCs have been advised to formulate policies and procedures to operationalize and ensure the observance of these guidelines, which come into immediate effect, in respect of all new customers, the bank said.

RBI tightens norms for NBFCs

In a bid to bring non-banking financial company (NBFC) norms in line with those of banks, the Reserve Bank of India (RBI) on Monday unleashed tighter rules for NBFCs. According to the new guidelines, NBFCs will require higher minimum capital, have less time to declare bad loans, and a board-approved fit and proper criteria for director appointments.