Eyes on complex bank-NBFC linkage
Mumbai: RBI is sharpening its focus on the fault lines that run between banks and non-bank lenders, wary that tighter linkages could amplify shocks in an uncertain global environment. Its report on banking trends makes clear that interconnectedness, particularly between banks and non-banking financial companies, has moved from a peripheral concern to a core element of financial-stability surveillance.Policymakers, the report says, remain alert to the growing role of non-banks and their increasingly complex ties with banks. As these links deepen, the RBI argues, stability will depend on “continued vigilance through robust supervision, effective macroprudential frameworks and enhanced oversight of interconnectedness”. The emphasis is less on headline growth and more on the channels through which stress could spread.
‘Banks Should Organise KYC Camps’ | Mis-Selling Norms Soon
One such channel is funding dependence. NBFCs rely heavily on bank credit, creating the risk that trouble in one segment spills quickly into another. To temper this, the RBI hiked risk weights on banks’ exposures to NBFCs in Nov 2023, to curb excessive concentration. Although these weights were partially rolled back for highly rated entities in Feb 2025, RBI has signalled that it will continue to monitor and manage concentration risk at the system level as part of its financial-stability toolkit.NBFCs have outpaced banks in credit expansion. NBFC credit as a share of scheduled commercial banks’ credit rose to 25.3 % from 23.6 % a year ago, while their credit-to-GDP ratio increased to 14.6 %. This outperformance was broad-based, with NBFCs recording higher credit growth than banks across major segments including industry (18.3 % vs 8.2 %), services (29.8 % vs 12.0 %), and retail loans (18.1 % vs 11.7 %). However, the microfinance sector is witnessing stress. The report notes that most lenders in this segment, excluding “other NBFCs”, recorded a contraction in credit at end-March 2025.The report also places domestic concerns in a global context. Episodes of market stress abroad have shown how liquidity strains in non-bank financial institutions can quickly intensify, driven by sudden spikes in margin and collateral calls. Such pressures, RBI warns, can transmit to banks unless policy frameworks are adapted to identify and manage leverage and liquidity risks in the non-bank sector.
