New Government Needs To Nurture NBFCs

The American statesman, Thomas Jefferson, and investment guru, Warren Buffet, who had between them more than a sesquicentennial era, were almost on the same page as far as a “debt” was concerned.

- Saptarshi Roy Bardhan

While the former held “never spend money before you have it”, “spend what is left after saving” – quipped the later. In a way, both of them were somewhat conservatively judgmental in their views while assessing a situation that might lead to seeking a debt.

Empirically, consumption in an economy is a function of money supply and availability of credit. In India, in addition to the banking system, Non-Banking Finance Companies (NBFCs) and Housing Finance Companies (HFCs) have been the supplier of such credit.

NBFCs along with HFCs have grown strongly, more specifically in the last three to four years. Number shows that the share of NBFCs and HFCs put together in the total credit system has been rising steadily from 15.2% in FY14- 15 to 19.6% in FY17-18.This was mainly because of the turmoil going on in the banking space with eleven Public Sector Banks (PSBs) being put under Prompt Corrective Action (PCA) regime of the Reserve Bank of India (RBI). Lending activity became prohibitive to a great extent and good amounts of the credit demand in the economy got channelled to NBFCs and HFCs - leading to the increase in their share in overall credit.