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RBI to Step up Scrutiny of NBFCs

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The Reserve Bank of India said it would intensify its scrutiny of nonbanking finance companies to ensure better compliance and financial strength, but did not indicate an asset-quality review like the one carried out on banks. NBFCs showed high growth taking advantage of the poor financial health of several public sector banks but the recent default by the group firms of non-bank lender IL&FS raised alarm and called for a reality check.
Former chief economic advisor Arvind Subramanian suggested asset quality review (AQR) for these lenders to fully measure the extent of the hidden stress in the system. “Like Raghu (former governor Raghuram Rajan) did an AQR for the banks, we need to an asset quality review for the NBFCs,” he told ETNow in December. RBI data showed that NBFCs cumulatively had loans assets worth ?3.42 lakh crore at the end of September with industry accounting for more than half of total credit extended by them, followed by retail, services and agriculture.
The central bank said retail loans of NBFCs grew 46% during 2017-18 — on top of a growth of 21.6% during 2016-17— reflecting upbeat consumer demand, especially in the vehicle loans segment. Credit to the services sector was driven mainly by commercial real estate and retail trade. “An asset quality review, particularly in certain types of exposures of NBFCs, may be apposite,” said Vinod Kothari, a financial consultant for NBFCs.

The Economic Times, 08th February 2019

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