Published Paper Details:

Non-banking financial institutions (NBFIs) are an important constituent of India's financial system. NBFCs are registered companies, both government and non-government, which engage in credit intermediation and facilitate last-mile credit delivery to unbanked and under banked sectors. They are also at the forefront of the digital transformation of the lending space, leveraging technology to offer tailor-made credit offerings to customers. NBFCs regulated by the Reserve Bank are a group of heterogeneous financial entities operating with diverse business strategies. During 2023-24, the NBFC sector remained healthy, with sustained double digit balance sheet growth. The importance of NBFCs in domestic credit intermediation is rising. Innovative approaches like the first loss default guarantee (FLDG) framework and the co-lending model have the potential to help NBFCs in expanding their footprint. Besides the challenges emanating from cyber security threats, NBFCs need to be mindful of the evolving concentration risk and climate-related financial risks associated with credit to certain sectors. The dependence of NBFCs on banks remains high, notwithstanding some moderation; NBFCs need to further diversify their sources of funds as a risk mitigation strategy.