RBI urges NBFCs and HFCs to harness digital infrastructure and bridge credit gaps while strengthening governance, liquidity, cyber resilience and customer protection.

Mumbai: Addressing the 7th CII Summit, RBI Deputy Governor Murmu said non-banking financial companies (NBFCs) and housing finance companies (HFCs) have moved beyond their traditional role as alternative lenders.

They have become specialised financial institutions that complement banks by serving remote areas, underserved borrowers and niche markets, he said.

Murmu added that have a significant opportunity to deepen credit, but growth must not weaken lending standards, governance or customer protection.

India’s non-banking financial companies (NBFCs) and housing finance companies (HFCs) have an opportunity to deepen credit, but growth must not weaken lending standards, governance or customer protection.

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The official said NBFC credit has risen to 16.7 percent of nominal GDP from 15.9 percent a year earlier. It is equivalent to 27 percent of credit extended by scheduled commercial banks, against 26 percent previously.

Credit gaps create opportunity

MSME credit demand remains unmet by formal lenders, highlighting the scope for expansion. NBFCs and HFCs can use India’s digital public infrastructure, including Aadhaar, UPI, Account Aggregators and the Unified Lending Interface, to lower borrowing costs and accelerate disbursements.

Consent-based data sharing and cash-flow-based assessments could reduce dependence on physical collateral, helping lenders serve MSMEs, microfinance customers and borrowers in remote areas.

Their expertise in affordable housing, vehicle finance, infrastructure debt and supply-chain finance can support tailored products and sharper risk assessment. Co-lending with banks could extend this reach.

Safeguards must keep pace

The Deputy Governor cautioned that past liquidity shocks had exposed weak asset management, dependence on short-term wholesale funding and vulnerabilities arising from links with the financial system.

Boards and senior management must foster compliance and ethical cultures. NBFCs and HFCs should diversify funding sources, strengthen liquidity management and use securitisation for risk transfer and capital release.

As lending accelerates, institutions must deploy rigorous stress tests, early-warning systems and dynamic provisioning. Artificial intelligence and machine learning can help detect signs of borrower stress, but growth must never undermine credit standards.

Customer trust must remain central as innovation gathers pace. Responsible lending, fair recovery practices and effective grievance redressal are essential, particularly for vulnerable borrowers.

The sector must invest in cyber resilience and data protection as it adopts AI, blockchain and other digital tools. The RBI will continue supporting responsible innovation through proportionate regulation while safeguarding financial stability, the Deputy Governor said.

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