The Reserve Bank of India (RBI) has sought detailed data from select non-banking financial companies (NBFCs) regarding their loan book growth, raising questions about systemic hygiene and the potential for a credit bubble, according to a report by Business Standard.
The central bank has requested information on the outstanding loan portfolios, broken down by product type, as well as the annualized interest rates charged on these loans. The interest rate slabs under review include: less than 10%, 10-20%, 20-30%, 30-40%, 40-50%, and over 50%.
Senior NBFC executives, speaking to Business Standard, indicated that the RBI is particularly interested in whether the growth of certain product categories is sustainable and compliant with systemic hygiene standards. The regulator is also assessing if the interest rates charged by NBFCs are excessive or violate the fair practices code. The move follows recent regulatory measures by the RBI aimed at preventing the rise of a credit bubble.
In November 2023, the RBI directed regulated entities to review their consumer credit exposure limits and establish board-approved thresholds for various sub-segments, with a special focus on unsecured consumer credit. These limits are to be implemented by February 29, 2024.
The RBI's Financial Stability Report (June 2024) had raised concerns about the consumer credit segment, highlighting several issues. Delinquency levels among borrowers with loans below Rs 50,000 remain notably high. NBFC-fintech lenders, which hold the largest share of both sanctioned and outstanding loans in this segment, also have the second-highest delinquency levels, only surpassed by small finance banks. Vintage delinquency—defined as the percentage of accounts that become delinquent (90-plus days past due) within 12 months of origination—stands at 8.2% for personal loans, signaling weaknesses in loan underwriting processes.
Further, the report revealed that over half of borrowers in the consumer credit segment have three active loans at the time of loan origination, while more than one-third of borrowers have taken out more than three loans within the preceding six months.
According to a recent note from ICRA Ratings, bank loans to NBFCs are expected to grow by around 12% in FY25, resulting in an incremental credit expansion of Rs 19-20.5 trillion. However, this is lower than the Rs 22 trillion expansion seen in the previous fiscal year. The effects of tighter regulatory norms on bank funding have already been felt, with incremental direct bank credit to NBFCs in Q1 FY25 totaling just Rs 7,500 crore, compared to Rs 92,000 crore in the same period last year.
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