Independent Research and Policy Advocacy

Regulatory and Supervisory Approaches for NBFCs

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Non-Banking Finance Companies (NBFCs) are a major source of funding for the Indian economy, contributing over 20% of the credit to the real sector. As of July 2020, there were approximately 9500 NBFCs, with 64 having deposit-taking abilities (D-NBFCs) and 292 non-deposit taking NBFCs with assets over Rs. 500 crores (cr)2 (SI-ND-NBFC). As of March 2020, the total assets of the NBFC sector amounted to Rs. 33.89 lakh cr3 . Further, over the last six years, excluding 2020, the NBFCs’ assets have grown at a higher pace than that of Scheduled Commercial Banks (SCBs)4 , while at the same time, their asset quality has remained significantly better than S CBs5 . There is an acknowledgement from the Reserve Bank of India (RBI) that NBFCs act as niche and last-mile financiers6 and play a critical role in India’s credit ecosystem. In this paper, we discuss how NBFCs can be regulated and supervised to enhance efficiency f or the overall financial sy stem, while minimising systemic and consumer protection risks, and thus the overall efficacy of credit delivery in India.

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