Source: BS
Context:
A research paper published in the RBI Bulletin analysed how monetary policy impulses are transmitted to Non-Banking Financial Companies (NBFCs). The study finds that while policy changes affect NBFC borrowing and lending rates, the transmission is incomplete due to structural and market constraints.
Key Highlights:
| Aspect | Key Highlights |
|---|---|
| Borrowing Side | – Dependence on bank and market borrowings; no direct access to LAF – Repo rate cuts don’t immediately lower NBFC funding costs- Borrowing costs depend on liquidity conditions & risk perception – Empirical finding: 1% repo rate change → 0.24% change in WABR (over 3 quarters) – Larger, profitable NBFCs borrow at lower rates |
| Lending Side | – NBFCs serve riskier borrowers, charging higher rates to cover defaults – Lending rates less responsive to policy rate changes – Empirical finding: 1% repo rate change → 0.33% change in WALR (over 3 quarters) |
| NBFC Sector Overview (Dec 2024) | – Asset quality improved: GNPA 3.4%, NNPA 1.2% – Credit portfolio: Industry + Retail = 72% of total – Retail loans growing double digits; industry & services moderate growth – Funding sources: Markets 38.7%, Banks 37.4%, ECBs rising (43% in FY25 vs 27.2% in FY24) |
| Digital & AI Integration | – NBFCs advised to proactively manage cyber risks – AI adoption to improve efficiency & service delivery |
