NBFCs should diversify risks across sectors: Former SBI Chairman

New Delhi: Non-banking financial companies (NBFCs) need to diversify risks across sectors and geographies, as well as maintain capital adequacy norms and introduce core banking solutions going ahead, former State Bank of India (SBI) Chairman Rajnish Kumar said.

Kumar also said the risk-taking abilities of NBFCs are higher than banks, and that the regulatory stance will become tougher, with the regulation arbitrage between lenders and non-banking entities ceasing to exist.

"Regarding asset quality review (AQR) of lenders, as pointed out by former RBI governor Raghuram Rajan, the NPA problem started with the NBFCs. The whole issue boils down to risk management and governance.

There is a need for NBFCs to take a diversified approach across sectors and geographies and also be mindful about the risk matrix, he said during an event organised by micro-finance institution VFS Capital here on Friday evening.

Kumar said the NBFCs will have to maintain capital adequacy norms, introduce core banking solutions and make adequate disclosures by 2025.

Nearly 23 per cent of lending in the financial sector happens through the NBFCs, he said.

Regarding NPA in the banking sector, the former SBI chief said lenders cannot escape their share of the blame, adding that faulty government policies in power, coal, telecom and road sectors are also responsible for bad loans.

"NPS crisis is a cycle, and it keeps emerging, he said.

(With PTI inputs)

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