Track asset quality closely, RBI tells NBFC chiefs again

MUMBAI: Reserve Bank of India on Monday warned non-banking financial companies in Mumbai to tighten underwriting and monitor risks closely, marking the third caution in eight days.The RBI met managing directors and CEOs of select NBFCs, including govt NBFCs, housing finance companies and microfinance institutions. The governor said while NBFCs play a key role in credit transmission, they must maintain sound underwriting standards, closely track asset quality, follow customer-centric and ethical practices, lend responsibly, and ensure prompt grievance redressal to preserve confidence and support orderly growth.The meeting underlined risks flagged earlier in the Trend and Progress of Banking report and the Financial Stability Report. The Financial Stability Report released on Dec 31, had warned that funding dependence remains a core vulnerability. “NBFCs remain heavily dependent on bank borrowings, creating contagion risks between the two sectors,” the report said. Concentration risk has also risen, with banks acquiring nearly 80% of securitised assets from a limited set of NBFCs, creating “correlated risk,” where stress at a few large originators could affect multiple banks.Asset quality indicators show mixed signals with segments like microfinance still showing signs of stress. Rapid growth in fintech-led unsecured lending has also drawn scrutiny. “Fintech firms have seen rapid growth in unsecured personal loans. There is higher impairment observed in small-ticket loans (up to Rs 50,000) and among borrowers with loans from multiple lenders,” the report said. It added that impairments were relatively higher in small-ticket loans and among borrowers with unsecured loans from five or more lenders.