RBI Highlights Robust Prospects For NBFCs In Vehicle & Gold Loan Segments
**Robust Prospects for NBFCs in Vehicle Loans and Loans Against Gold, Says RBI Bulletin**
*Mumbai:*
Prospects for Non-Banking Financial Companies (NBFCs) in segments like vehicle loans and loans against gold appear robust, buoyed by improvements in vehicle sales and rising gold prices, according to an RBI bulletin released on Wednesday.
The Reserve Bank of India observed that NBFCs play a vital role in India’s economic growth. By providing finance for infrastructure, vehicles, housing, and consumer goods, these institutions help improve aggregate demand, create jobs, and contribute to economic expansion.
The growing contribution of NBFCs to credit, particularly in the industrial and retail sectors, is evident from their rising credit-to-GDP ratio. Moreover, the introduction of the Liquidity Coverage Ratio (LCR) is expected to further bolster NBFCs’ short-term resilience.
As the financial sector increasingly adopts artificial intelligence (AI) and machine learning (ML), the RBI suggested that NBFCs must remain vigilant and proactively address cyber challenges by effectively leveraging these new technologies.
In India, NBFCs continued to record double-digit credit growth as of the end of December 2024. This expansion is clearly reflected in the rising NBFC credit-to-GDP ratio, sustained primarily by lending to the industrial and retail sectors, which continue to dominate their portfolios.
The bulletin highlighted that the NBFC sector remains robust in terms of various profitability and prudential indicators, including return on assets (ROA), return on equity (ROE), net interest margin (NIM), capital to risk-weighted assets ratio (CRAR), and non-performing assets (NPA).
To contain the spike in growth rates of unsecured loans, the RBI increased risk weights in November 2023, a measure that has helped in managing associated risks.
Regarding sources of finance, NBFCs continue to rely largely on bank borrowings and debentures. The role of NBFCs in credit intermediation and their interlinkages with banks and other financial institutions have significant implications for the transmission of monetary policy impulses to the financial sector and the real economy.
Empirical analysis indicates that there is monetary policy transmission to NBFCs’ borrowing and lending rates, albeit incomplete.
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