India Finance Report – CAFRAL

Context:

• The Centre for Advanced Financial Research and Learning (CAFRAL), set up by the RBI, has raised concern over the rise in bank financing for non-banking finance companies.

Key Highlights of India Finance Report

• Following the market correction prompted by a brief pause due to the COVID-19 pandemic, bank financing for NBFCs has risen again.
• Banks’ exposure to NBFCs rose by 25.8 percent to Rs 13.83 lakh crore as of August 2023 as against Rs 10.99 lakh crore a year ago, the latest RBI data showed.
• There is also a significant fall in reserves and surplus indicating that buffers grow thinner.

• CAFRAL also warned against the many fake/ illegal lending apps in the marketplace, stating that these apps pose legal and collect information they could use maliciously.

FinTech lending is projected to exceed traditional bank lending by 2030:

• FinTech has widened the range of products available to customers and expanded its distribution channels.
  • For example: Across 80 application stores, nearly 1100 lending apps were available for Indian Android users.
• Focus of Fintech: Non-bank lenders, given their access to novel credit delivery methods, provide credit to underserved borrower segments that are left behind in the credit access network by traditional banking.
• For Example A large increase in the size of the retail lending loan books of NBFCs and FinTech lenders (2.75 times and 124.5 times, respectively, from 2014 to 2019), much larger than the loan growth for traditional banks.”
• Risk of digital lending: It is important to assess the potential stability risks digital lending would pose to the larger economy as it grows.
  • The poor and the marginalized are an important market segment that digital lending targets; any losses in digital lending have important implications for credit availability and financial inclusion for this group. 
• Predatory lending through deceptive lending practices or onerous loan terms can have detrimental consequences, especially for disadvantaged households.

Source: Indian Express

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