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India Finance Report 2023


Why is it in the news?

  • Centre for Advanced Financial Research and Learning (CAFRAL) released its first flagship India Finance Report 2023.
  • The report’s theme is “Connecting the Last Mile: Non-Banking Financial Companies (NBFCs) in India.”

 

·       NBFCs are companies registered under the Companies Act 1956 that provide bank-like financial services but do not hold banking licenses.

·       CAFRAL, established in 2006, operates as an independent body under the Reserve Bank of India (RBI) to advance research in finance, macroeconomics, and public policy.

 Key Highlights of the Report:

  • Monetary Policy Transmission (MPT) through NBFCs is strong, but there is a delay of nearly two years to see its impact on their balance sheet.
  • NBFCs facilitate further deepening of financial inclusion by serving underserved subprime and marginalized borrowers.
  • Retail lending by NBFCs has grown significantly over the last decade, increasing by 223.2%, primarily through technology leverage.
  • NBFCs are at the forefront of digital lending, with a share of digital lending to overall lending at 60.53% for NBFCs compared to 5.53% for banks in FY 2020.
  • The growth of NBFCs in India has proliferated since the global financial crisis, although they faced disruptions and systemic spillovers in 2018-19, notably due to the (Infrastructure Leasing & Financial Services) IL&FS default.
  • The rapid growth in the NBFC sector has coincided with a decline in the share of bank credit.
Monetary Policy Transmission

·       It is the mechanism through which changes in a central bank’s policy rates, such as interest rates, are conveyed to financial institutions and, ultimately, to consumers and businesses.

·       When a central bank like the Reserve Bank of India (RBI) lowers policy rates, it aims to encourage banks to reduce lending rates, making borrowing more affordable for customers and stimulating economic growth.

·       Effective transmission ensures that the intended impact of monetary policy actions, such as controlling inflation and supporting economic growth, is realized throughout the economy.

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