NBFCs Should Seek Alternate Fundraising Options Other Than Banks: Report
The Reserve Bank of India (RBI) on Wednesday in its report titled 'Trend and Progress of Banking in India 2022-23' has sought non-bank finance companies (NBFCs) to broad-base their fundraising to limit their reliance on banks as it called for strengthening of balance sheets and guarding data breaches and frauds.
As per the report 'Trend and Progress of Banking in India 2022-23' released by the RBI, the Indian banking system and NBFCs remain sound and resilient, backed by strengthening asset quality, high capital adequacy ratios and robust earnings growth.
The report mentions that the consolidated balance sheet of scheduled commercial banks (SCBs) in 2022-23 has expanded by 12.2 per cent, driven by credit to services sector and retail. Deposit growth has also picked up, but remains behind credit growth.
Looking ahead, it emphasises that given the increasing interconnectedness between banks and NBFCs, the latter should focus on broad basing their funding sources and reduce their overdependence on bank funding. Banks and non-banks both, need to bring in greater empathy in their customer services, it said.
A joint comprehensive effort is needed by all stakeholders to protect the banking and payments system from the risks of data breaches and fraud emanating from cyber threats, the report highlighted.
"Overall, NBFCs and banks need to further strengthen their balance sheets using robust risk management practices and governance to meet the growing aspirations of the Indian economy," the report said.
The report indicates that banks have experienced an improvement in their asset quality since 2018-19, which has continued into 2022-23. Even in the first half of the financial year 2023-24 (April-September), the gross non-performing assets (GNPA) ratio remains low at 3.2 per cent.
The report also highlights that higher net interest income and lower provisioning have contributed to an increase in net interest margin (NIM) and profitability throughout 2022-23.
