RBI Urges NBFCs: Focus on Trust, Tech, and Risk

Non-banking financial companies (NBFCs) and housing finance companies (HFCs) are urged by RBI Deputy Governor Shirish Chandra Murmu to focus on five critical areas for sustainable growth. These pillars include strengthening governance, enhancing liquidity risk management, maintaining asset quality, prioritizing customer protection, and embracing digital transformation with robust cybersecurity. Murmu emphasized that past liquidity events highlighted vulnerabilities, stressing that strong liquidity risk management and diversified funding sources are not optional but essential for stability.

As credit growth accelerates, the risk to asset quality also increases. Murmu cautioned against compromising underwriting standards for the sake of growth, advocating for rigorous stress testing and the use of AI and machine learning for early detection of borrower distress. Boards and senior management must cultivate a culture of compliance and ethics. Furthermore, investing in strong cybersecurity is paramount to protect customer data and maintain trust. The deputy governor noted that NBFC credit constitutes a significant portion of total bank credit and is evolving from alternative lenders to specialized financial partners. He concluded by stating that the opportunities for NBFCs and HFCs are substantial, driven by India's growing economy, demographics, urbanization, and digital advancements, with technology and trust shaping their future trajectory.