Mumbai: Prospects for NBFCs in segments like vehicle loans and loans against gold appear robust, buoyed by improvements in vehicle sales and rising gold prices, an RBI bulletin said on Wednesday.
Observing that Non-banking Financial Companies (NBFCs) play a vital role in India's economic growth, it said, these institutions by providing finance for infrastructure, vehicles, housing, and consumer goods, improve aggregate demand, create jobs, and contribute to economic expansion.
The growing contribution of NBFCs to credit, particularly to the industrial and retail sectors, is evident in their rising credit-to-GDP ratio, it said. Moreover, the introduction of Liquidity Coverage Ratio (LCR) is set to further bolster NBFCs' short-term resilience, it said.As the financial sector increasingly adopts artificial intelligence and machine learning, NBFCs must remain vigilant and proactively address cyber challenges by leveraging these new opportunities effectively, it suggested.
In India, NBFCs continued to record double digit credit growth as of end-December 2024. This expansion is evident from a rising NBFC credit to GDP ratio sustained by lending to industry and retail sector, which continue to dominate their portfolio.
The bulletin noted that NBFC sector remains robust in terms of various profitability and prudential indicators such as return on assets, return on equity, net interest margin, capital to risk weighted assets and non-performing assets.The spike in growth rate of unsecured loans was contained through increase in risk weights in November 2023, it said.
With regards to sources of finance, NBFCs continue to rely largely on bank borrowings and debentures. NBFCs' role in credit intermediation and interlinkages with banks and other financial institutions have implications for transmission of monetary policy impulses to the financial sector and real economy, it said.Empirical analysis points to the fact that there is monetary policy transmission to NBFCs' borrowing and lending rates, albeit, incomplete, it said.
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