As the role of Non-Banking Financial Companies (NBFCs) changes from alternative lenders to specialised financial partners, RBI Deputy Governor Shirish Chandra Murmu has outlined five key focus areas for sustainable growth amid emerging challenges and opportunities.
NBFC sector grows as its role expands in India’s financial system
NBFC credit today is about 16.7 per cent of nominal GDP, up from 15.9 per cent a year earlier. It is about 27 per cent of the credit extended by Scheduled Commercial Banks, up from 26 per cent.
In the latest RBI Bulletin for September, Murmu set out five areas for the NBFC and HFC sector.
Governance and compliance remain the foundation for NBFC growth
“Good governance is the foundation of every strong institution. Boards and senior management must build a culture of sustained compliance and ethics across the organisation. As the sector scales, that strength must scale with it,” he suggested.
Liquidity management and funding diversification gain importance
The second area is liquidity management. Past liquidity events have shown how exposed NBFCs and HFCs can be to shifts in market sentiment and funding concentration.
“Strong liquidity risk management is not optional. Recent episodes in some advanced economies are reminder of this. Entities must diversify their funding sources. A deep, liquid corporate bond market will help, and we will keep working with market participants to build one,” he wrote.
Customer trust and responsible lending remain top priorities
Securitisation should also grow beyond a liquidity tool – into a genuine way to transfer risk and free up capital, with proper skin-in-the-game and transparency rules, Murmu added.
Third, as credit growth speeds up, so does the risk to asset quality. Lenders need rigorous stress testing, early-warning systems, and dynamic provisioning. AI and machine learning tools should be used more to detect early signs of borrower stress.
“Let me be clear: growth must never come at the cost of underwriting standards,” he mentioned.
Fourth, customer trust is fundamental to sustainable business, and the pace of innovation must never outpace the protection, especially of vulnerable customers.
“Conduct regulation, grievance redressal, and responsible lending remain top priorities for us. Our recent guidelines on conduct of recovery agent reflect this priority. In an age where feedback travels instantly, there is no substitute for public trust,” said Murmu.
Digital transformation must go hand in hand with cyber security
The last area is digital transformation and cyber resilience. Technology adoption must keep deepening – from blockchain in supply chain finance to AI in fraud detection.
“But digitalisation brings cyber risk. Cyber resilience must stay a top priority. Entities must invest in strong cyber security to protect customer data and maintain trust. Innovation must serve both efficiency and fairness,” Murmu stressed.
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