Many NBFCs have used the pandemic to reinvent their business models, realising the power of data analytics and big data in business applications. In this regard, many have tied up with fintech firms to leverage technological innovations. NBFCs need to be better equipped and focused on cyber fraud prevention, noted RBI’s annual report, ‘Trend and Progress of Banking in India 2020-21.’
The report observed that the pandemic has tested the resilience of NBFCs, but so far, the sector has emerged stronger with reasonable balance sheet growth, increased credit intermediation, higher capital, lower delinquency ratio, and enlarged liquidity cushions. Various policies in the aftermath of the pandemic ensured liquidity support, moratorium, and asset classification standstill eased financial conditions and gave NBFCs adequate time and wherewithal to weather the shock and leverage their grassroots level reach to channelize credit to productive sectors and revive growth.
Many NBFCs have adopted strong credit risk assessment frameworks to ensure the quality of credit creation. The Reserve Bank has introduced scale-based regulation to enhance the regulatory oversight over the sector, effective October 2022. To further strengthen the supervisory tools applicable to NBFCs, the Reserve Bank issued Prompt Corrective Action Framework for NBFCs effective October 20, 2022. The recent amendment to the Factoring Regulation Act can incentivise all NBFCs to boost the MSME sector.
The Reserve Bank’s recent act of superseding the boards of NBFCs that failed to repay debts is evidence of the vigilance the regulator has on the sector in protecting stakeholders’ interests and preventing adverse impacts on the financial system.
With increased pace of vaccinations and the broadening revival of the economy, the NBFC sector is expected to remain buoyant. The financial system is maturing from a bank-dominated space to a hybrid system wherein non-bank intermediaries are gaining prominence. The developments in the sector in 2020-21 are a harbinger of even brighter prospects in the years ahead, the central bank stated.
