Deposit-taking NBFCs shrink on RBI diktats

Inability to participate in co-lending, unviable business models make players re-think deposit mobilisation

- AJAY RAMANATHAN

THE INCREASING REGULATORY scrutiny on deposit-taking entities of non-banking financial companies and the RBI (Reserve Bank of India)'s reluctance to hand out fresh deposit permits have compelled shadow banks to look for alternate sources of funding.

Additionally, the inability of many small and medium-sized NBFCs to build a sizeable deposit base has contributed to the sharp decline in the number of deposit taking NBFCs, say experts.

The latest data from the Reserve Bank of India (RBI) showed that the number of deposit-taking NBFCs fell to 26 in September 2023, from 241 in March 2014. The deposit base of non-bank lenders stood at ₹96,156 crore as of September 30.

"The regulations for deposit-taking NBFCs are very stringent regardless of size and scale of these lenders. It has been a stated policy of the RBI to discourage deposit acceptance by NBFCs. For instance, deposit-taking NBFCs are not eligible to partake in co-lending arrangements even as these type of arrangements have gained traction," said Raman Aggarwal, director, Finance Industry Development Council.