Reserve Bank of India: The Reserve Bank of India has said in one of its reports that the condition of non-banking financial companies (NBFCs) remains stable. Their condition has improved with adequate capital, strong interest margins and better asset quality. Talking about this in the Financial Stability Report, it has been said that this year RBI had taken action to stop giving loans to four non-banking financial companies. This was done in order to help consumers charge more interest on loans. After this action of RBI, the loan growth of these financial companies has decreased by 6.5 percent.
NBFCs are relying on bond market to raise money
The non-financial institutions that have seen a decline in credit growth mainly include large-scale NBFC-investment credit companies, whose retail lending accounts for the largest share in their loan books (63.8 percent). Overall, credit growth in this sector has declined from 22.1 percent to 16 percent.
The report said that due to lack of direct funding from banks, NBFCs are becoming more dependent on the bond market to raise capital. Bank funding for highly rated NBFCs, including direct lending, commercial paper and debentures, has declined from 35.8 per cent to 34.6 per cent by September 2024. Similarly, for medium scale NBFCs it has decreased from 26.7 percent to 26.3 percent.
Condition of NBFC stable despite challenges
NBFC’s borrowing from banks has also decreased from 26 percent to 17 percent, while their dependence on non-banking sources has increased. The corporate bond market is a major source of funding for NBFCs, which issue the largest number of bonds. Apart from this, private placement is also a preferred method of funding.
To mitigate the impact of less direct funding from banks, NBFCs have turned to more issuance of listed non-convertible debentures (NCDs). Apart from this, NBFCs have also adopted the route of foreign currency borrowing for funding. However, despite all these challenges, the NBFC sector remains stable.
