PremiumThe non-banking financial company (NBFC) sector rebounded in the first six months of FY21, after facing difficulties in the previous financial year, brought about by the lack of liquidity and confidence and now amplified by covid-19, RBI said on Tuesday.
“Growth in NBFCs balance sheets decelerated considerably in 2019-20; however, NBFCs remained well capitalised with resilient asset quality vis-à-vis that of scheduled commercial banks (SCBs). In the first half of FY21, green shoots were visible as loans and advances rebounded," it said.
These institutions play an important role in facilitating credit intermediation in India as an alternative to bank financing, in addition to niche financing and last mile outreach, it said in the Report on Trend and Progress of Banking in India 2019-20.
“Credit intensity, as measured by NBFCs’ credit to gross domestic product (GDP) ratio has been rising consistently, reaching an all-time high in 2018-19 before moderating in 2019-20 in the wake of the pandemic. NBFCs’ credit as proportion of scheduled commercial banks’ SCBs’ non-food credit has risen more sharply, especially during 2014 to 2019," the report said.
According to RBI, the NBFC sector is dominated by (NBFCs-ND-SI) that constitute 85.7% of the total assets of the sector. Few large government-owned NBFCs, mainly catering to the infrastructure space, comprise 43.3% of the total assets of NBFCs-ND-SI. Among non-deposit taking NBFCs, those with asset size of ₹500 crore or more are classified as non-deposit taking systemically important NBFCs (NBFCs-ND-SI).
The central bank said it has been monitoring the operations and growth of deposit taking NBFCs in order to secure depositors’ interest, given that deposits of these non-banks are not covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
“Industry remained the largest recipient of credit extended by the NBFC sector, followed by retail loans and services. The share of the retail loan portfolio increased in 2019-20 with a corresponding fall in the shares of all other sectors," it said, adding that in line with the overall credit deceleration, there was a sharp reduction in credit growth to all sectors, barring retail.
Credit to agriculture, industry and services recorded absolute declines, while the retail sector expanded at a slower pace during 2019-20.
That apart, during FY20, NBFCs’ industrial credit growth was impacted by the stress in thermal power projects, lower demand for finance owing to slowdown in construction activities, fall in manufacturing sector output as well as disruptions due to covid-19.
Non-bank financiers, RBI said, have gradually changed their borrowing profile and swapped short-term borrowings for long-term borrowings, as alluded to earlier. In order to mitigate the temporary liquidity mismatches of NBFCs/ housing finance companies (HFCs), the Partial Credit Guarantee Scheme (PCGS) was announced in the Union Budget 2019-20.
