Market volatility may increase due to RBI's stance on NBFCs, Fitch expressed concern
Fitch: The rating agency said the recent RBI advisory on non-bank financial institutions (NBFIs) has highlighted compliance gaps in the sector. However, its compliance may increase market volatility.
The Reserve Bank of India's (RBI) recent initiatives to improve risk management and corporate governance in non-banking financial institutions (NBFCs) may, if successful, lower industry risks in the long run, according to Fitch Ratings. However, the affected non-banking units' trading volatility will rise in the near term.
The rating agency said the recent advisories issued by the RBI on non-bank financial institutions (NBFIs) have highlighted compliance deficiencies in the sector.
The RBI recently clarified that NBFIs must adhere to the existing regulatory limits on disbursement of cash loans of less than Rs 20,000 (about $240).
Fitch said gold loans in India are often given in cash, as it is a source of credit for many rural and semi-urban borrowers. The average loan size for Fitch-rated gold loan providers ranges between Rs 50,000 to Rs 80,000, a significant portion of which has been disbursed in cash since the advisory was issued.
