
State Bank of India (SBI) has requested the Reserve Bank of India (RBI) to limit the number of lenders for non-banking financial companies (NBFCs). Currently, many NBFCs borrow from more than 50-60 lenders simultaneously.
To understand this, first you should know what is NBFC. NBFC or non-banking financial company is a financial institution that is not legally a bank; it does not have a full banking license or is not supervised by a national or international banking regulatory agency. It is a company registered under the Companies Act, 1956 of India. Click here to join our whatsapp group to get banking and finance updates.
NBFCs perform functions similar to that of banks but there are a few differences-
- NBFCs provide banking services to people without holding a Bank licence,
- An NBFC cannot accept Demand Deposits,
- An NBFC is not a part of the payment and settlement system
- An NBFC cannot issue Cheques drawn on itself
- Deposit insurance facility of the Deposit Insurance and Credit Guarantee Corporation is not available for NBFC depositors, unlike banks
- An NBFC is not required to maintain Reserve Ratios (CRR, SLR etc.)
- An NBFC cannot indulge primarily in agricultural or industrial activities or sale-purchase, construction of immovable property
- Foreign Investment allowed up to 100%
- An NBFC accompanies working in Financial Body and Money handling
- Unlike banks NBFC is not required to lend loans to priority sector.
SBI believes that having a large number of lenders makes it difficult to monitor the loan books of NBFCs effectively. “Most NBFCs have a lot of banks as their lenders. Sometimes it can be more than 50-60, which makes it challenging for us to conduct proper due diligence,” as per a source.
The source further explained that multiple banks may lend to a single NBFC, but they rarely communicate or have meetings to assess the borrower’s performance. SBI’s concerns also arise from the fact that although the non-performing assets (NPAs) of NBFCs have decreased considerably, they are still relatively high. According to the RBI’s December 2023 financial stability report, the gross NPA ratio of NBFCs decreased from 7.2% in December 2021 to 4.6% in September 2023.
In addition, there are unlisted NBFCs whose data is not regularly available. “So if any stress is building up, it would be difficult for anyone to know,” another source said. The source highlighted cases like Infrastructure Leasing & Financial Services (IL&FS) and the former Dewan Housing Finance Corp (DHFL) as examples of potential contagion effects if NBFCs face difficulties.
To address these concerns, SBI has proposed the formation of a consortium of lenders to make common lending decisions, at least for large-sized NBFCs. Additionally, there is a need to establish a mechanism for monitoring the performance of all NBFCs. Last October, SIDBI (Small Industries Development Bank of India) attempted to bring all small NBFCs onto its growth accelerator program to make them eligible for bank funding, but the platform has not gained traction. Proponents argue that a joint platform will only succeed when all major banks participate or when the banking regulator supports it.
While the RBI has taken steps to increase the risk weights of bank loans to NBFCs, many believe that more actions can be taken to address the situation. Recently, RBI has also cancelled licenses of several NBFCs. Click here to join our whatsapp group to get banking and finance updates.
This is the best opinion or suggestion. No borrower is allowed borrow from multiple Banks, whereas the same borrower is allowed borrow from NBFCs, the NBFC actually funded by the same Bank of the borrower.
Apart from NBFCs are not governed by Banking Regulations, their establishments, Jobs, Perks etc., are at their whims and fancies. Even the most ineligible candidates will also get posting or jobs in NBFC just with their personal contacts or against some. Considerations. It is high time to curtail the undue activities
I think SBI thinks better for banking services to NBFCfor borrowing from banks to be limited looking to managing controlling exposure
SBI HAVE right DIRECTION FOR Monitoring THE NBFC because DP calculation is big issue the lending to borrower by NBFC the same borrower DP is allowed to bank on multiple banking because data is not verified by the bank and also in micro finance one borrower is one one loan one time if he has unable to pay then another loan given for escape for NPS. And banking is finance 10 to 11
%. And same is forward lending. Approx ROI 20 to 30% you can verify through audited balance by amount of Other income VS interest income