RBI Sees No Asset Quality Concerns For NBFCs; Governor Sanjay Malhotra Says Bank Credit Growth To Remain Strong

Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday said the central bank sees no concerns over the asset quality of non-banking financial companies (NBFCs) despite high liquidity in the banking system.

Speaking at the post-Monetary Policy Committee (MPC) press conference, Malhotra said NBFC growth remained robust, with bank credit to the sector rising by around 37%.

NBFC credit growth has also remained strong, although it is lower than that of banks. Malhotra said the RBI remains alert to risks emerging from asset quality as well as demand and price pressures.

His comments came after the six-member MPC unanimously raised the repo rate by 25 basis points to 5.5% from 5.25% and shifted its stance from neutral to calibrated tightening.

Bank credit growth expected to remain strong

Malhotra said overall bank credit growth, currently at 19%, is expected to remain strong despite higher interest rates.

While growth could moderate by a few percentage points, he said such changes would not significantly alter the broader credit outlook.

On whether the RBI could use the cash reserve ratio (CRR) to manage liquidity, Malhotra said he did not want to rule out any option.

The Governor also clarified that the shift to calibrated tightening effectively rules out an interest-rate cut in the near term.

RBI keeps focus on 4% inflation target

Malhotra said the central bank's next policy action would involve either maintaining rates or raising them further. The scale of any increase would depend on evolving macroeconomic conditions and the growth-inflation dynamics.

Explaining the revised stance, he said tightening refers to a monetary policy approach involving higher interest rates that can restrain economic activity. Calibrated tightening indicates that such action would be measured and based on changing economic conditions.

In comparison, an accommodative stance involves relatively loose monetary policy and lower interest rates, while a neutral stance signals neither accommodation nor tightening.

Malhotra reiterated that the RBI remains focused on bringing headline inflation towards the government's 4% target.