NBFC Sector: Navigating Resilience & Growth under SBR Framework

The Non-Banking Financial Companies (NBFC) sector in India is experiencing a remarkable transformation! Since the introduction of Scale-Based Regulations (SBR) in 2022, NBFCs have shown consistent improvement in their performance, achieving double-digit credit growth, maintaining adequate capital, and improving their asset quality. ????

As of December 2023, NBFCs have demonstrated lower delinquency rates, signaling that the SBR framework is working effectively. For instance, gross NPAs that ranged from 4.4% to 10.6% in 2021 have significantly declined to 2.4% to 6.3%, a clear reflection of enhanced risk management practices within the sector. ????

Key players such as Bajaj Finance, Shriram Finance, and LIC Housing Finance have complied with the new framework, setting the benchmark for others to follow. These entities are not only diversifying their funding bases but are also reducing dependency on bank borrowings—a strategic move that strengthens their overall financial stability. ????

Another pivotal regulatory development is the extension of the Prompt Corrective Action (PCA) framework to government-owned NBFCs starting October 2024. This move is expected to foster greater financial discipline, improve risk management, and further enhance the sector's resilience. The PCA norms will closely monitor capital and asset quality, ensuring that NBFCs continue to perform well while mitigating risks. ?????

Amidst all this progress, NBFCs are also expanding their portfolios, with secured retail credit (gold loans, vehicle loans, housing loans) seeing robust growth, alongside significant advances in the industrial and service sectors. The sector is embracing this momentum while preparing for emerging challenges like cyber-security threats and climate risks. ?????

The assurance functions—risk management, compliance, and internal audits—are becoming even more critical in ensuring the sector’s long-term stability. In light of their growing role in the Indian financial system, NBFCs need to stay vigilant, proactive, and agile in navigating the evolving landscape. ????

With strong foundations in place, India’s NBFC sector is on a resilient path. But as the world changes rapidly, staying ahead in risk management will be the key to sustainable growth. Let’s watch as NBFCs continue to evolve, adapt, and thrive in this new era of financial innovation!

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