RBI red-flags bank-NBFC interlink risks

Banks acquiring 80% assets through a limited number of NBFCs

- ANUPREKSHA JAIN

The Reserve Bank of India (RBI) has red flagged concentration risks for banks as they increasingly buy loans originated from non-banking financial companies (NBFC) to scale up their retail portfolios.

Moreover, banks are acquiring around 80 per cent of these assets through a limited number of NBFCs, which could create correlated risk and amplification of stress, the financial stability report of the RBI released on Wednesday said.

“Banks are increasingly acquiring these assets to scale their retail portfolios, earn higher yields, and meet priority-sector targets,” the report said while observing that credit performance of acquired pools by public-sector banks has been weaker than their own originations, with direct assignment and co-lending pools showing higher loan losses.