In spite of the previlaing concerns around non-bank lenders due to defaults by industry major IL&FS, the Reserve Bank on Friday said it will ensure that growth in the shadow-banking sector is sustained and liquidity fears are eased.
The NBFC sector faces liquidity crisis after a series of defaults by Infrastructure Leasing & Financial Services (IL&FS) and its many subsidiaries since late August.
"While in 2018-19, though concerns surrounding the sector due to debt defaults amidst temporary asset liability mismatches arose, the inherent strength of the NBFC sector, coupled with the RBI's continuing vigil on the regulatory and supervisory front, will ensure that the growth of the sector is sustained and liquidity fears are allayed," RBI said in its annual report on 'Trends & Progress of Banking in 2017-18', released Friday.
The report said the NBFC sector, with a size of around 15 percent of the commercial banks' combined balance sheet, has been growing robustly in recent years, providing an alternative source of funds to the commercial sector in the face of slowing bank credit.
The financial performance of these shadow-banks, including profitability, asset quality and capital adequacy, improved during FY18 as they weathered the transient effects of demonetisation and GST implementation, the report noted.
Consolidated balance sheet of NBFCs expanded in 2017- 18 and in 2018-19 (up to September), buoyed by strong credit expansion, the report said without quantifying the same.
Category-wise, the balance sheet of NBFCs-NDSI expanded by 13.4 percent, while the balance sheet of deposit- taking NBFCs registering robust growth at 24.4 per cent in 2017-18 on account of a sharp rise in loans and advances.
Retail loans of NBFCs grew at a robust 46.2 percent during 2017-18-on top of a growth of 21.6 percent during 2016 -17-reflecting upbeat consumer demand, especially in the vehicle loans segment.
The non-bank lenders' profitability improved during 2017-18 and 2018-19 (up to September) mainly due to an increase in fund-based income.