STRENGTHEN INDIA'S DEBT MARKET TO STRENGTHEN NBFCs

India’s financial markets are still a work-in-progress and there’s a dearth of alternatives to bank funding, especially for the long-term. The solution, therefore, is to deepen India’s bond markets that would free NBFCs from excessive dependence on banks to make the occasional failures like IL&FS less traumatic for the banking and financial system. The development of an active and liquid corporate bond market will greatly help in the transparent and efficient financing of business and industry, especially NBFCs.

- Shri V.P.Nandakumar MD & CEO

It’s well known that in recent years India's banks have been grappling with high levels of non-performing assets (NPAs). This problem came to light in 2014-15 when the Reserve Bank of India, suspecting that NPAs were being under-reported over the years, introduced tougher norms for NPA recognition under an Asset Quality Review. The result was that NPAs in 2015-16 almost doubled over the previous year. With the consequent sharp increase in provisioning, many banks have suffered severe erosion of their capital base. This, in turn, constrained their ability to lend in tune with the requirements of the growing economy. Since credit is the lifeblood of the economy, India stood to suffer badly under these circumstances.

However, as things turned out, it was not as gloomy as one would have feared, only because the non-banking financial companies (NBFCs) stepped up to the plate. Consider these figures. The lending book of India’s NBFCs has grown at a rate of 18 percent in the last five years, while the sector’s contribution to total credit has increased from 15 percent to 20 percent in just three years. The NBFC sector has played a pivotal role in meeting the financial needs of individuals and businesses that have traditionally remained un-served or underserved by banks. NBFCs are now recognized as last-mile financiers with proven ability to lend to those marginalised sections of society that commercial banks would not have deemed creditworthy. Also, most of them are niche players who approach their business with focused attention and unique insights which allows them to devise innovative ways to address the special needs of their target segment. And innovation allows them to generate profits out of businesses that mainstream players would dismiss as losing propositions.