Mumbai: Reserve Bank of India (RBI) Deputy Governor Shirish Chandra Murmu on Thursday urged non-banking financial companies (NBFCs) and housing finance companies (HFCs) to diversify their funding sources and reduce their exposure to sudden shifts in market sentiment as the sector enters a new phase of growth.
Addressing the CII’s NBFC and HFC Summit in Mumbai, Murmu said greater diversification of funding would strengthen the sector’s resilience, while a deeper and more liquid corporate bond market could provide NBFCs with additional avenues to raise funds.
“Entities must diversify their funding sources. A deep, liquid corporate bond market will help, and we will keep working with market participants to build one,” he said.
The RBI Deputy Governor said past episodes of liquidity stress had exposed weaknesses in asset-liability management and highlighted the sector’s dependence on short-term wholesale funding. Such events also demonstrated the close links between NBFCs and the wider financial system, underscoring the need for stronger governance and risk management.
Murmu also called for a greater role for securitisation in the NBFC sector. He said securitisation should move beyond being primarily a liquidity management mechanism and evolve into a meaningful avenue for transferring risk and releasing capital.
“Securitisation should also grow beyond a liquidity tool into a genuine way to transfer risk and free up capital, with proper skin-in-the-game and transparency rules,” he said.
Highlighting the growing importance of NBFCs in India’s credit ecosystem, Murmu said NBFC credit currently accounts for around 16.7 per cent of nominal gross domestic product (GDP), compared with 15.9 per cent a year earlier. Their credit is also equivalent to around 27 per cent of the credit extended by scheduled commercial banks, up from 26 per cent a year earlier.
He said the role of NBFCs was changing from that of alternative lenders to specialised financial partners, with their sector-specific expertise and ability to reach underserved borrowers becoming increasingly important for meeting India’s expanding credit needs.
“NBFCs and HFCs are no longer on the sidelines of this story. They extend credit to the last mile, reach the underserved, and bring innovation to lending across the country,” Murmu said.
(IANS)
