RBI governor Sanjay Malhotra said the central bank is still assessing revolving credit norms for non-banking finance companies. On August 6, the RBI issued draft norms proposing only term loans. Malhotra said, “We will form a fresh opinion on this issue, and we will issue final instructions.” He remains alert.
Synopsis
Reserve Bank of India governor Sanjay Malhotra has indicated that regulations on revolving credit by non-banking finance companies are under review. The RBI issued draft norms limiting NBFCs to term loans without revolving credit options. Malhotra said that systemic risks linked to these changes will be thoroughly evaluated before reaching a decision.
Mumbai: Reserve Bank of India (RBI) governor Sanjay Malhotra said that revolving credit products currently offered by non banking finance companies (NBFCs) were never regulatorily approved but the proposed changes are still under consideration and will be finalised after assessing the situation. The surplus liquidity generated in the banking system will also not hamper the asset quality of NBFCs, Malhotra said in the post policy press conference.
“The draft framework (on revolving credit) is a clarification. NBFCs were never allowed to offer revolver credit. NBFCs have been given directions against such practice in RBI’s past inspections. Now, due to emerging technology NBFCs are offering term loans as revolving credit. We have received a lot of feedback from stakeholders; we are studying it. We will form a fresh opinion on this issue, and we will issue final instructions. We must consider if this can lead to a systemic risk in this issue,” Malhotra said.
On August 6, the RBI issued draft norms that proposed that NBFCs be permitted to offer only term loans and not revolving credit products which generally have a maximum credit limit which borrowers can repay and use anytime.
ET had reported that NBFCs are seeking relief from the RBI as the new regulations could disrupt credit products worth more than Rs 2 lakh crore and constrain access to finance for micro, small and medium enterprises (MSMEs) and individuals.
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Malhotra said that the RBI will assess the situation because making its final decision. “This is still being examined by the department and it has not reached at my levels. We will discuss internally with deputy governors and at my level and take the decision,” he said.
He said bank credit to NBFCs has been quite robust at about 37% but there are no concerns on asset quality in the sector. “Credit growth for NBFCs is also robust but lower than that of banks. We do not see any issues or concerns relating to asset quality of NBFCs. We are always alert to such risks getting developed, not only from an asset quality point of view but also on demand and price pressures getting built,” he said.
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