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Bank loans to NBFCs under RBI scanner
June 26, 2023
Annual inspections by the Reserve Bank of India (RBI) has commenced for banks. With FY23 financials under the scanner, what’s grabbing the regulator’s attention is the loans handed out by banks to non-banking finance companies (NBFCs).
With the share of bank loans to NBFCs as a percentage of loan book increasing to 13-16 per cent for the top 20 players a jump of 200-250 basis points the RBI is ascertaining the implication of these loans to the balance sheets of banks from an asset quality perspective.
To put things into context, loans to NBFCs are categories as ‘secured’ by banks as they are often backed by liquid collaterals, including receivables.
However, with the growing proportion of NBFCs, particularly those operating in the non-housing segment such as business loans and personal loans which are often unsecured, there is a debate between banks and the regulator on how these loans should be treated.
If unconvinced by the merits put forth by banks, the regulator may insist that banks take contingent provisioning against loans lent to NBFC borrowers. “The question is whether such a provisioning would be insisted on FY23 financials or banks will get some breather to implement higher provisioning in the ongoing FY24 fiscal,” said a person aware of the matte
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