New Delhi: India needs more large institutions to meet the increasing demand for credit and support the country's credit growth, said Rajiv Sabharwal, managing director of Tata Capital.
During a session titled ‘Upper Layer NBFCs - The Way Forward’ at the Mint BFSI Summit on Thursday, he estimated the credit market at 180 lakh crore, with an expected annual increase of ₹25-30 lakh crore.
Sabharwal underscored the importance of having institutions beyond the top banks and NBFCs that are capable of lending ₹75 to 80 lakh crore a year. He said that while there was a need for more large institutions to meet the growing credit demand, achieving that would be nearly impossible in this generation.
Discussing competition among non-banking financial companies (NBFCs), Ramesh Iyer, vice chairman & MD of Mahindra Finance, highlighted the potential for market expansion. He said financial service providers should focus on growing the market, and that co-lending could be a solution for overlapping segments. Iyer noted the shift from knowledge-based NBFCs to data-driven ones, resulting in reduced costs.
Sonali Kulkarni, MD and lead - financial services at Accenture in India, highlighted the niche expertise and efficient cost structures of NBFCs. Their deep domain knowledge, cost-effectiveness, and understanding of specific segments differentiate them from banks, allowing for sustainable business models, she added.
Recently, the Centre for Advanced Financial Research and Learning (CAFRAL), established by the Reserve Bank of India (RBI), expressed concern about the increase in bank financing for NBFCs. CAFRAL highlighted potential systemic risks, especially considering the market correction after the IL&FS default and the pandemic. The report showed a fall in secured borrowings, a slight increase in unsecured borrowings, and a significant drop in reserves and surplus.
RBI data revealed a 25.8% increase in banks' exposure to NBFCs to ₹13.83 lakh crore in August 2023. CAFRAL further highlighted the importance of analysing the NBFC sector, noting that deceptive lending practices or burdensome loan terms could harm the well-being of vulnerable households. The report suggested that regulators and policymakers strike a balance between fostering innovation and safeguarding the welfare of borrowers.
