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Enough data on NBFCs; now get down to data crunching and regulatory oversight

The non-performing assets (NPAs) of NBFCs are about 5.8 per cent in 2017-18. As against this, the commercial bank NPAs are about 11.6 per cent of its loan book.

twitter-logo Anand Adhikari   New Delhi     Last Updated: January 7, 2019  | 21:56 IST
Enough data on NBFCs; now get down to data crunching and regulatory oversight

The Department of Economic Affairs Secretary  S C Garg recently  pointed out that data points  are very poor when it comes to non-banking finance companies (NBFCs). He also talked about lacunae in the regulations. Garg made this comment in connection with the IL&FS crisis as the issue suddenly caught everyone off guard.

Like banks, NBFCs are regulated by the Reserve Bank of India (RBI). The central bank also releases its report on stress-testing of NBFCs and also their interconnectedness with the financial system.  Clearly, there is a case of strengthening the asset liability framework for NBFCs, but there are enough data points on NBFCs. Take a look:

  • There are a dozen activity-based classifications of NBFCs by the RBI.  The classification ranges from asset finance, loan company, investment company, infrastructure, MFI, and Peer  to Peer (P2P).  In fact, P2P is the latest addition when this new kind of fintech lending started globally. RBI was quite proactive in bringing the P2P under its fold by issuing fresh regulations for this new segment. This shows that there is a clear demarcation of activities of NBFCs, and each of these NBFCs follow regulations, maintain mandatory capital and abide by other requirements.
  • The systemically important NBFCs currently have liabilities of Rs 22.76 lakh crore.  The share of CP is about 6.17 per cent whereas the bank fund is about 17.74 per cent in 2017-18.  This shows that the liability profile of NBFCs is clearly known.  One can easily see how the liability profile is changing over the years.
  • The non-performing assets (NPAs) of NBFCs are about 5.8 per cent in 2017-18. As against this, the commercial bank NPAs are about 11.6 per cent of its loan book.  This shows that the NPAs are low as compared to banks.  In fact, the former CEA Arvind Subramanian recently suggested a bank-like asset quality review (AQR)  for the NBFCs.  This is what is needed to check on the health of NBFCs or making provisions in advance for stressed loans.
  • The retail loans of NBFCs are growing at a fast pace. The assets rose by 46.2 per cent in 2017-18. The previous year's growth was 21.6 per cent.  This massive growth is driven by vehicle loans followed by consumer durables and housing loans.  The regulators or the government should keep an eye on such kind of high growth and from where it is coming from.
  • The total income of NBFC sector was Rs 51 lakh crore with net profits of Rs 38,600 crore in 2017-18. The financial health of NBFCs is also well-known. This is a very crucial data to show whether the NBFCs are running their house profitably or making losses.

Also Read: NBFCs balance sheet grew 17.2% to Rs 26 trillion as of Sep 2018: RBI

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