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Tag: nbfcs

  • Top NBFCs seek RBI nod to raise retail deposits

    MUMBAI: Large non-banking finance companies (NBFCs) have urged the central bank to allow them to raise deposits from retail investors-a move they say would create a level playing field among finance companies and improve transmission of policy rates, people familiar with the matter told ET.

    This request was conveyed by select finance companies to the Reserve Bank of India (RBI) governor Sanjay Malhotra, during a closed-door meeting held on Monday.

    Except for a few NBFCs with legacy licences, most NBFCs are barred from raising retail deposits. Bajaj Finance, Shriram Finance, and Mahindra Finance are among the few NBFCs that are permitted to accept retail deposits. The governor met the CEOs of NBFCs, housing finance companies, microfinance institutions, and industry representatives on Monday.

    To be sure, the RBI has long resisted demands from well-rated NBFCs to be allowed to garner retail deposits, something that is the funding mainstay for banks.

    “The critical issue here is that bank deposits, up to Rs 5 lakh, are insured by DICGC or Deposit Insurance and Credit Guarantee Corporation, unlike NBFC deposits. That is one of the concerns preventing the regulator from issuing new deposit-taking licences to finance companies,” said an economist, who declined to be named. “The regulator would always err on the side of caution.”

    NBFCs that are allowed to raise deposits face strict limits. Retail deposits can’t exceed 1.5 times their net owned funds. The term deposits must have tenures ranging from 12 to 60 months, and interest rates are capped at 12.5% per annum.

    As of March 2025, retail deposits accounted for about 12.5% of resources deposits raised by NBFCs-D, the RBI said in its annual Trend and Progress report. The report noted that five major NBFC-Ds account for 96.9% of aggregate deposits.

    Speaking to ET, Jairam Sridharan, MD of Piramal Finance, hinted that while NBFCs seek a stable liability structure, few aspire for a banking licence that would allow retail deposit mobilisation.

    “Few NBFCs have the skills to do deposit management. It’s a very different ballgame than giving customers your money. Asking customers for their money requires trust and a certain level of fiduciary abilities internally in governance architectures. Maybe there are 10 or 12 NBFCs which have anything close to that kind of ability, the remaining 9,500 probably don’t have it,” Sridharan said in an interview on November 6, 2025.

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  • New AIF norms on dematerialisation of investments, mandatory custodian appointments kick in

    New AIF norms on dematerialisation of investments, mandatory custodian appointments kick in

    Securities and Exchange Board of India (SEBI) has begun the new year on a strong note, bringing into effect its November 2023 Board decisions that among other things extended the requirement of mandatory appointment of custodians by Alternate Investment Funds (AIFs) to schemes with corpus less than or equal to ₹500 crore. 

    Till now, this mandatory Custodian appointment norm was applicable to Category III AIFs and to Category I and II AIFs with corpus more than ₹500 crore. Now it stands extended to all AIFs.

    The market regulator has effective January 5 this year amended its 2012 framed AIF Regulations to also stipulate that AIFs can hold securities of their investments only in dematerialised form subject to certain exceptions.

    The exclusions are investments by AIFs in instruments which are not eligible for dematerialisation; investments held by a liquidation scheme of AIF that are not available in dematerialised form. 

    SEBI has also now empowered itself to specify in future such other investments by AIFs or such other schemes of AIFs that need not be covered under dematerialisation requirement.

    The move to mandate AIFs to hold their investments in dematerialised form will enhance transparency, reduce risk and provide comfort to investors, say experts.

    This will also encourage digitalisation of financial markets in India, to facilitate access to the market and ease of doing business, they said. The dematerialisation requirement will align AIFs with national priority, it was felt.

    NEW CONDITIONS 

    AIFs can now appoint a Custodian who is an Associate of a Manager or a Sponsor of an alternate fund only when certain conditions are met. 

    At all points of time, the Sponsor or Manager should have minimum net worth of ₹ 20,000 crore. Also, fifty percent or more of the directors of the Custodian do not represent the interest of the Sponsor or Manager or their associates. The Custodian and the Sponsor or Manager of the AIF are not subsidiaries of each other and they do not have common directors. 

    SEBI also now wants the Custodians and the Manager of the AIF sign an undertaking that they would act independently of each other in their dealings of the schemes of the Fund.

    REGULATORY GAPS 

    The latest changes by SEBI in its AIF regulations comes at a time when regulators (including RBI) have moved fast to close various regulatory gaps that led to breaches in the spirit of law and the use of such investments vehicles for escaping regulatory oversight. 

    Recently, RBI in an apparent bid to address concerns of possible ever-greening through the AIF route tightened the norms for banks and NBFCs investing in such investment vehicles.

    The central bank had, in the third week of December 2023, directed banks and NBFCs to not make investments in any AIFs that has downstream investments either directly or indirectly in a borrower of the bank.

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  • Banks, NBFCs post double digit loan growth in Q3

    Banks, NBFCs post double digit loan growth in Q3

    MUMBAI Banks, both public sector and private, continued to post robust double-digit loan growth of 11-23 per cent y-o-y in Q3 FY24, as per provisional figures declared by the lenders for the quarter.

    Credit growth for banks such as YES Bank, South Indian Bank and Dhanlaxmi Bank was at the lower end of 11-12 per cent whereas for lenders such as IndusInd Bank, Bank of Maharashtra and CSB Bank was at the higher end of 20-23 per cent. Growth for small finance banks was over 20 per cent given their small base with Suryoday SFB posting loan growth of 41 per cent on year.

    NBFCs such as Bajaj Finance and Mahindra Finance too posted strong credit growth for the quarter, with their assets under management rising by 35 per cent and 25 per cent, respectively, on year. Poonawalla Fincorp, with a smaller asset base, posted a growth of 57 per cent y-o-y.

    Deposit growth for banks remained steady in the reporting quarter but continued to lag loan growth barring for Federal Bank and YES Bank, which saw slightly higher deposit growth. Rise in deposits for Punjab National Bank and South Indian Bank fell below the double-digit mark at 9 per cent.

    Small finance banks saw accelerated rise in deposits posting growth of 29-38 per cent, likely on the back of higher interest rates being offered by these banks on savings accounts and fixed deposits to hasten deposit accretion and build their liability profiles.

    Sequentially, loan growth for banks was in the range of 2-8 per cent, whereas deposit growth was at 1-8 per cent. Here too, deposit growth lagged loan growth for most major banks.

    CASA deposits

    Much of the deposit growth during the quarter was led by fixed and bulk deposits as CASA (current and savings accounts) deposits remained under pressure. CASA deposits have been slowing down for most lenders over the past several quarters as investors are shifting to higher yielding investment avenues. This has increased banks’ reliance on other forms of deposits, including substantially increasing rates on term deposits. This led to RBI to recently cautioning banks against over-reliance on bulk deposits.

    CASA ratios for banks, which have declared their provisional numbers, fell to 25.3-50.2 per cent from 26.2-52.5 per cent in the year ago period. Suryoday SFB was the outlier seeing an increase in its CASA ratio to 18.5 per cent from 14.1 per cent, even as its share of CASA deposits remain much below the industry average.

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  • Lenders flag rising delinquencies in small ticket unsecured retail loans post RBI caution

    Lenders flag rising delinquencies in small ticket unsecured retail loans post RBI caution

    A fortnight after RBI cautioned banks against unprecedented growth in unsecured retail loans and asked them to grow “sensibly”, large banks and NBFCs have flagged increased risks and delinquencies in some small-ticket segments.

    As a part of Q2 earnings, ICICI Bank highlighted that market trends and research indicate risk build up and higher defaults in lower ticket loans, especially below ₹50,000 where affordability and repayment ability are constraints.

    Kotak Bank too acknowledged headwinds and higher delinquencies in certain unsecured segments, especially smaller ticket loans, but interim MD Dipak Gupta said the risk-adjusted returns are still “okay”.

    Lenders are continuously monitoring these portfolios and haven’t reached a point of putting the brakes or panicking, he said, adding that while the rate of default is higher than last year, it continues to be below pre-Covid levels.

    Bajaj Finance, the largest retail NBFC, said leverage levels have worsened for the below ₹50,000 ticket portfolio and the company has cut exposure to borrowers with multiple lines of credit of less than ₹50,000 as it reflects imprudence.

    Personal loans up

    Personal loans, including credit cards, grew to 10.7 crore in FY23 from 7 crore in FY22 and 4.5 crore in FY20, led by the less than ₹50,000 and above ₹8 lakh segments, as per an internal analysis by Bajaj Finance. Industry AUM for the segment rose to ₹13.5-lakh crore in FY23 from ₹7.5-lakh crore in FY20.

    Unsecured retail loans accounted for a significant portion of lenders’ fresh slippages in Q2 FY24, however most lenders dismissed any marked concerns given the smaller share of these loans in the total book and the steady rate of collections and recoveries.

    A recent SBI report said unsecured retail loans comprise one-tenth of banks total loans, indicating contained risk at the time. Small-ticket personal loans of below ₹50,000 comprised 2 per cent of banks’ overall personal loans and 0.3 per cent of retail loans as of FY23, according to CIBIL CMI data.

    Corrective action

    Bajaj Finance has reduced exposure to urban unsecured retail loans by 8 per cent and rural loans by 14 per cent. MD Rajeev Jain said the rural B2C segment looked the most vulnerable at the moment and was the only segment where the lender has taken “corrective action” based on the bounce and slippage rates and portfolio efficiency.

    While Kotak Bank will continue its policy of completely providing for unsecured retail loans that are 180 dpd (days past due), RBL Bank said it has accelerated risk mitigation by fully providing for such loans at 120 dpd. This led to the bank providing an ₹48 crore more, in addition to which it also made contingent provisions of ₹252 crore on its microfinance and credit card portfolios.

    Yes Bank said it has strengthened underwriting and is strategically going slower in certain retail segments such as unsecured loans, given the increasing trend of delinquencies, especially in the 30 dpd segment.

    In the October policy, RBI had asked lenders to strengthen their internal risk mechanisms as the “first line of defence” to avoid any future challenges, adding that robust risk management and stronger underwriting standards are the “need of the hour”.

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  • NBFCs’ AUM to rise 13-15% in FY24 led by 18-20% retail loan growth: ICRA

    NBFCs’ AUM to rise 13-15% in FY24 led by 18-20% retail loan growth: ICRA

    The growth outlook for NBFCs and HFCs (housing finance companies) has improved to 13-15 per cent from 11-13 per cent earlier led by an upward revision in the projection of retail loan growth, ICRA Ratings said on Thursday.

    Total sector AUM stood, consisting of retail, infrastructure and wholesale loans, stood at about ₹40-lakh crore at the end of March.

    Retail loan portfolios of NBFCs are seen growing 18-20 per cent in FY24 against 12-14 per cent earlier, the rating agency said, attributing the revision to strong growth in unsecured loans – comprising personal and consumption loans, unsecured small enterprise loans and microfinance loans. NBFCs’ retail AUM was at ₹14-lakh crore as of March 2023.

    “High growth in the NBFC-retail segment shall be driven by the expected expansion of 26-28 per cent for unsecured loans, which stood at about ₹5.1-lakh crore as of March 2023. Secured NBFC-retail AUM, consisting of vehicle finance, gold loans and secured business loans etc, together is expected to grow at a relatively sedate albeit healthy 14-16 per cent,” said AM Karthik, Vice-President & Co-Group Head, Financial Sector Ratings, ICRA.

    HFCs’ retail AUM of ₹7-lakh crore as of March 2023, comprising home loans and loans against property, is expected to grow at 12-14 per cent, also higher the earlier estimate of 11-13 per cent.

    On the other hand, the growth outlook for infrastructure and other wholesale loans remained unchanged at 10-12 per cent, ICRA said.

    In FY23, NBFCs’ retail AUM grew 26 per cent led by 44 per cent increase in unsecured loans. Unsecured loans have grown at a CAGR of 27 per cent over the last five years whereas secured loans grew at 11 per cent.

    “Unsecured loans would face higher credit losses even on a steady-state basis vis-à-vis most other secured lending segments; loan losses for this segment would be about 4-6 per cent, on a cohort basis,” Karthik said.

    Incremental funding

    To support growth, NBFCs and HFCs are estimated to require incremental funding of ₹4.7-5.0 lakh crore in FY24, over and above the refinancing of existing/maturing debt, ICRA said, adding that the weighted average cost of funds likely to go up by 60-80 bps for the year driven by continued repricing of lending rates.

    Return on managed assets (RoMA) for NBFCs is seen moderating slightly to 2.6-2.8 per cent in FY24 from 2.8 per cent in FY23, whereas for HFCs is seen rising to 1.7-1.9 per cent against 1.7 per cent in FY23 due to their sizeable share of floating rate loans.

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  • Banks witness robust deposit accretion and credit demand in reporting fortnight

    Banks witness robust deposit accretion and credit demand in reporting fortnight

    Scheduled banks reported a growth in deposits in the reporting fortnight ended June 16, 2023, as they continue with high deposit rates even as they are getting good inflows due to deposit of ₹2,000 notes, which the RBI is currently withdrawing from the banking system.

    Credit growth too jumped in the wake of robust demand from retail, NBFCs and infrastructure segments.

    Deposits and credit of scheduled banks rose by ₹3,03,283 crore and ₹4,17,571 crore, respectively, in the reporting fortnight, per RBI data on Scheduled Banks’ Statement of Position in India.

    Following increase in deposits, banks’ investments in Government Securities (G-Secs) and State G-Secs too went up by ₹1,76,019 crore to fulfil the statutory liquidity ratio requirements.

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  • Bank of India launches “Centralised Pool Buy-Out and Co-Lending Cell” to boost priority sector lending

    Bank of India launches “Centralised Pool Buy-Out and Co-Lending Cell” to boost priority sector lending

    Bank of India has launched a ‘Centralized Pool Buy-Out and Co-Lending Cell’ to boost priority sector lending. 

    The Cell, which is housed in the Bank’s Mumbai headquarters, will be equipped with an end-to-end digital underwriting system to onboard pool buy-out and co-lending of loans in partnership with NBFCs (non-banking finance companies), per the public sector bank’s statement.

    Through this platform, seamless integration will be provided between the Bank and multiple NBFCs.

    The Cell will onboard loan assets under Retail, MSME and the Agriculture segment with a dedicated team, the Bank said.

    So far, the Bank had been underwriting the aforementioned loans via various branches spread across the country.

    Rajneesh Karnatak – MD & CEO, Bank of India, said: “Our Bank will build a sizeable business book through its digital platform while complying fully with all the regulatory guidelines.

    “By leveraging our partnerships with NBFCs, Bank of India will improve its priority sector lending portfolio.”

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  • Bank loans to NBFCs under RBI scanner

    Bank loans to NBFCs under RBI scanner

    Annual inspections by the Reserve Bank of India (RBI) has commenced for banks. With FY23 financials under the scanner, what’s grabbing the regulator’s attention is the loans handed out by banks to non-banking finance companies (NBFCs).

    With the share of bank loans to NBFCs as a percentage of loan book increasing to 13-16 per cent for the top 20 players — a jump of 200-250 basis points — the RBI is ascertaining the implication of these loans to the balance sheets of banks from an asset quality perspective.

    Higher provisioning

    To put things into context, loans to NBFCs are categories as ‘secured’ by banks as they are often backed by liquid collaterals, including receivables.

    However, with the growing proportion of NBFCs, particularly those operating in the non-housing segment such as business loans and personal loans which are often unsecured, there is a debate between banks and the regulator on how these loans should be treated.

    If unconvinced by the merits put forth by banks, the regulator may insist that banks take contingent provisioning against loans lent to NBFC borrowers. “The question is whether such a provisioning would be insisted on FY23 financials or banks will get some breather to implement higher provisioning in the ongoing FY24 fiscal,” said a person aware of the matter.

    Secured or not?

    Are loans to NBFCs really secured — that’s the debate doing the rounds, according to highly placed sources.

    “For banks, these could be secured loans, but the end-use of these loans goes into building unsecured books. In that case, even if loans to NBFCs are backed by hard collateral, they may not be recoverable in practice. This is the concern for RBI,” said a person aware of the matter.

    Bankers say this debate has been ongoing for a while, but the magnitude it has taken in FY23 annual inspection has taken them by surprise. “It’s in early stages of talks and in a quarter or so, the outcome will be known,” said the person.

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  • RBI cancels certificate of registration of four NFBCs; list here  

    RBI cancels certificate of registration of four NFBCs; list here  

    The Reserve Bank of India (RBI) on Wednesday said that it has cancelled the certificate of registration of four NBFCs (Non-Banking Financial Companies). While the bank regulator did not disclose the reasons, it has put out the names of the companies.
     
    The companies whose certification has been cancelled are SRM Properties And Finance Company (Rajasthan), North East Region Finservices Limited (Manipur), Sowjenvee Finance Limited (Karnataka) and Opel Finance Limited (Patna).
     
    These companies will not transact the business of a non-banking financial institution, the RBI said.
     
    This comes just two days after the RBI cancelled the licence of Pune-based Seva Vikas Co-operative Bank and imposed a monetary penalty of Rs 48 lakh on Kerala State Co-operative Bank Ltd, Thiruvananthapuram.
     
    The RBI said Seva Vikas Co-operative Bank did not have adequate capital and earning prospects and that it would be unable to pay its present depositors in full. The public interest would be adversely affected if the bank is allowed to carry on its banking business any further, the central bank said.
     
    For the penalty on Kerala State Co-operative Bank, the RBI said it did not comply with its directions specifying the extent and the conditions subject to which co-operative banks were permitted to hold shares in any other co-operative society. The bank also failed to comply with the RBI directions limiting the quantum of gold loans that could be granted under the bullet repayment option.

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