According to a top official from SBI, banks need to be given a “stronger overview” of the lending policies used by non-bank lenders that borrow from them.
According to C S Setty, managing director of the biggest lender in the nation, non-bank financing firms and microfinance organizations should adhere to the same risk underwriting and credit monitoring standards as the bigger banks from whom they borrow money.
It should be highlighted that banks offer loans to these non-bank lenders and also participate in onlending agreements, wherein an NBFC or MFI evaluates a borrower and uses its distribution and collection experience to issue a loan.
Setty emphasized that non-bank lenders should adhere to the same risk underwriting and credit monitoring standards as the bigger banks from whom they borrow, saying “the banks should have a stronger overview on lending practices of borrowers from the non-banking lenders.”
Because loans to NBFCs and MFIs make up a significant amount of banks’ lending, he said, banks must be “mindful of aggregate risk of the incipient stress, if any.”
According to Setty, a banker’s responsibility is to evaluate risk, manage it, and set a price for it. He also said that NBFCs have taken a lot of loans over the last five or six years. Additionally, he made it plain that bank loans to these organizations shouldn’t be considered financial sector loans since they eventually benefit the real economy.
What are the governance criteria that MFIs adhere to, if you take them as an example? And what are the norms of evaluation and quality that NBFCs are using while underwriting? Because we are the biggest lender to both the NBFC and MFI sectors, these two pose a combined danger to the banking industry, he added.
Setty said that SBI is not actively seeking to expand its network of 65,000 business correspondents but rather is concentrating on providing them with the technology tools necessary to supply additional banking products.
He also said that in order to extend its network, the bank is concentrating on unbanked urban, suburban, and rural regions.
