RBI Governor Warns Against NBFCs’ Rapid Growth

• Reserve Bank of India Governor Shaktikanta Das warns against NBFCs pursuing aggressive growth without sustainable business practices and risk management frameworks.
• NBFCs, including microfinance institutions and housing finance companies, are chasing excessive returns on equity due to significant capital accretion and pressure from investors.
• Concerns arise when interest rates charged by NBFCs become usurious, combined with high processing fees and frivolous penalties.
• Das identifies a ‘push effect’ where business targets drive retail credit growth rather than actual demand, posing financial stability risks.
• Das urges NBFCs to review prevailing compensation practices, variable pay, and incentive structures, some of which are target-driven.
• Das emphasizes the need for self-correction by NBFCs and measures to prevent stress build-up in unsecured loan segments.