Opinion
Mint Quick Edit | RBI has served NBFCs a timely warning
Summary
- On Wednesday, RBI governor Shaktikanta Das asked non-banking financial companies to mend their ways. Rightly so. Too many seem too reckless. While NBFCs go about filling market gaps, they must stay within regulatory bounds and deploy sustainable and non-exploitative business practices.
India’s victory over its financial system’s bad loan problem took much pain and hard work. It would therefore be a shame if the recklessness of some unruly players were to undo those gains.
This explains the warning that Reserve Bank of India (RBI) governor Shaktikanta Das issued to non-banking financial companies (NBFCs) seen to be placing business growth over prudence, which could lead to a build-up of risks across the credit ecosystem.
Some NBFCs have also resorted to usurious lending practices amid pressure from their investors to increase returns on investment. Further, compensation structures linked to expansion targets are also found to be driving undesirable trends.
To be sure, the industry is playing a welcome role in expanding credit availability, especially to segments that are underserved by regular banks on account of geographical constraints or other restraining factors.
Also read: RBI warns NBFCs that chasing growth at all costs threatens financial stability
But while NBFCs go about filling market gaps, they must stay within regulatory bounds and deploy business practices that are sustainable and non-exploitative. RBI’s caution should serve as a wake-up call for them to take corrective action themselves before the regulator is forced to intervene.
