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Informist, Thursday, May 29, 2025

MUMBAI – The Reserve Bank of India aims to tighten supervision of non-banking financial companies and revamp financial inclusion measures in 2025-26 (Apr-Mar), the central bank outlined in its annual report for FY25.

The central bank plans to review the financial inclusion index and examine ways to enhance supervision of NBFCs, particularly those in the base layer. The RBI will also evaluate how well regulated entities are adhering to pricing norms to prevent excessive interest rates on loans. A key part of the agenda involves reviewing the risk-based approach for know your customer, or KYC, and anti-money laundering supervision under the Utkarsh 2.0 framework, especially for NBFCs classified in the upper layer and those in the middle layer with assets over INR 50 billion.

The central bank further said that it will continue monitoring NBFCs (excluding housing finance companies) and asset reconstruction companies registered with it. It will also assess the transition of NBFCs to risk-based supervision.

Notably, the RBI has also decided against implementing an external benchmark-linked rate system for certain NBFC loans, citing feasibility concerns.

The central bank noticed that even as NBFC credit grew in double digits by December 2024, growth in unsecured loans moderated. However, the sector saw improved profitability, better asset quality, and a strong capital base. To boost credit offtake and support the economy, the RBI decided to reduce risk weights on bank lending to NBFCs starting Apr. 1, 2025. Despite improved metrics, NBFCs still rely heavily on banks for funds, reinforcing the need to diversify funding sources. The scale-based regulation framework is expected to help improve governance and risk controls.

At a macro level, RBI expects the Indian economy to remain the fastest-growing major economy in FY26, supported by private consumption, robust corporate and bank balance sheets, and government capital expenditure. It sees easing supply chains, softer global commodity prices, and a good monsoon as positive for inflation. Still, the RBI warned that financial markets may experience bouts of volatility due to global uncertainties, including shifting trade policies and geopolitical tensions.

The financial system, RBI said, remains well-capitalised, thanks to the strong balance sheets of financial firms and corporates. Economic momentum picked up in the latter half of FY25 after a weak second quarter, driven by rural demand, improved agriculture, and recovery in government spending and services activity.

Looking ahead, the RBI plans to develop a 'Growth-at-Risk' model in FY26 to understand how current financial vulnerabilities and conditions could impact future economic growth. It will also conduct policy-driven research to guide market operations more effectively under its long-term Utkarsh 2.0 strategy.  End

Reported by Sachi Pandey

Edited by Deepshikha Bhardwaj

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