RBI red flags NBFC consumer credit, calls for close monitoring of a few
Mumbai, Jun 27, 2024
Says need to monitor NBFCs growing fast clip pace with low capital buffers
Even if the overall credit quality of consumer credit showed improvement, the Reserve Bank of India's Financial Stability Report red-flagged three pressure points of non-banking finance companies' consumer loans.
“In the consumer credit segment, there are a few concerns that require close monitoring,” the report said.
First, delinquency levels among borrowers with retail loans below Rs 50,000 remain high.
The report particularly pointed to NBFC-fintech lenders, which have the highest share in sanctioned and outstanding amounts and also have the second highest delinquency levels, only below that of small finance banks.
Second, vintage delinquency, which is a measure of slippage, remains relatively high in personal loans at 8.2 per cent.
The third aspect, the report says, is that a little more than half of the borrowers in this segment have three live loans at the time of origination and more than one-third of the borrowers have availed more than three loans in the last six months.
The report flagged the need for close monitoring of a few NBFCs which were growing at a fast clip with low capital buffers as they posed a risk to systemic stability.
The report noted that even as inquiry volumes remain robust, the impact of an increase in risk weights on certain segments of consumer credit pulled down the rate of growth in overall consumer credit, especially personal loans and credit cards.
In November last year, the regulator increased risk weights for unsecured loans for both banks and NBFCs.
Following the increase in risk weight, the share of such loans in the total advances of non-banking finance companies (NBFCs) declined sharply to 22.9 per cent in March 2024 from 32.2 per cent in March 2023.
Retail lending by NBFCs recorded some moderation in growth to 14.8 per cent in March 2024 from 16.6 per cent in March 2023. While retail loan growth decelerated, the growth in loans to industry and services accelerated. The growth in industrial advances was largely contributed by government-owned finance companies, it added.
Turning to the capital adequacy and asset quality profile of NBFCs, the report said NBFCs remain healthy, with a capital adequacy ratio of 26.6 per cent and gross non-performing assets of 4.0 per cent at the end of March 2024. The return on assets (RoA) stood at 3.3 per cent at end-March 2024.
Overall, the NBFC sector maintained large capital buffers boosted by improving asset quality and robust earnings. Despite a 79 basis points decline during H2FY24, the capital ratio of 26.6 per cent remains well above the regulatory minimum of 15 per cent.
The report said growth in bank lending to NBFCs was an area of concern, which prompted the regulator to take regulatory measures in November 2023 as interlinkages could be a potential source of systemic risk.
The measures taken – increase in risk weights by 25 percentage points – in November 2023 are coming to fruition as bank lending to NBFCs has also declined to 9.4 per cent of total bank credit as of end-April 2024, down from its peak of 10.0 per cent in June 2023, the report said.
Moreover, growth (year-on-year basis) in bank lending to NBFCs has also moderated from 18.9 per cent in November 2023 to 14.6 per cent in April 2024.
NBFCs were the largest net borrowers of funds from the financial system, with gross payables of Rs 16.58 trillion and gross receivables of Rs 1.61 lakh crore as of end-March 2024. A breakup of their gross payables revealed that the bulk of funds were sourced from scheduled commercial banks, followed by AMC-MFs and insurance companies, it added.
[The Business Standard]
