RBI's Murmu urges NBFCs, HFCs to diversify funding, strengthen liquidity

Reserve Bank of India (RBI) Deputy Governor Shirish Chandra Murmu on Thursday asked non-banking financial companies (NBFCs) and housing finance companies (HFCs) to diversify their funding sources and reduce their vulnerability to shifts in market sentiment, as the sector enters a new phase of growth.

“Entities must diversify their funding sources. A deep, liquid corporate bond market will help, and we will keep working with market participants to build one,” Murmu said at the CII’s NBFC and HFC Summit in Mumbai.

He said past liquidity events had exposed weaknesses in asset-liability management and the sector’s reliance on short-term wholesale funding. These episodes also highlighted the NBFC sector’s deep links with the wider financial system and the need for stronger governance.

Murmu also called for securitisation to play a larger role in the sector, moving beyond its use as a liquidity management tool to facilitate risk transfer and release capital.

“Securitisation should also grow beyond a liquidity tool into a genuine way to transfer risk and free up capital, with proper skin-in-the-game and transparency rules,” he said.

The RBI deputy governor said NBFCs had become an increasingly important part of India’s credit system. NBFC credit is currently around 16.7 per cent of nominal gross domestic product (GDP), up from 15.9 per cent a year earlier. Their credit is equivalent to around 27 per cent of that extended by scheduled commercial banks, compared with 26 per cent a year earlier.

Murmu said the role of NBFCs was evolving from that of alternative lenders to specialised financial partners. Their sector-specific expertise and ability to reach underserved borrowers would be important in meeting India’s credit requirements.

“NBFCs and HFCs are no longer on the sidelines of this story. They extend credit to the last mile, reach the underserved, and bring innovation to lending across the country,” he said.

He pointed to sectors such as supply-chain finance, infrastructure debt, affordable housing, vehicle financing and gold- and silver-backed lending, where NBFCs and HFCs have developed specialised expertise. Such specialisation can help lenders assess risks better and structure loans around borrowers’ cash flows, he said.

Technology would also help expand formal credit, particularly to segments where credit gaps remain. Murmu highlighted digital public infrastructure such as the Account Aggregator framework and Unified Lending Interface (ULI), which can help lower the cost of credit, speed up disbursals and improve lending decisions.

However, he cautioned that faster credit growth should not come at the expense of asset quality.

“As credit growth speeds up, so does the risk to asset quality,” Murmu said, calling for rigorous stress testing, early-warning systems and dynamic provisioning. He also encouraged lenders to use artificial intelligence and machine learning to detect early signs of borrower stress.

“Growth must never come at the cost of underwriting standards,” he said.

Murmu identified governance and culture, liquidity management, asset quality and credit risk, customer protection, and digital transformation and cyber resilience as key areas for sustainable growth.

He said the RBI’s regulatory measures over the past five to six years had focused on strengthening the foundations of the sector, including the liquidity risk management framework, phased liquidity coverage ratio requirements and the scale-based regulatory framework for NBFCs.

“Regulation is not only about managing risk. It is also about enabling sustainable growth,” Murmu said.

He added that the RBI would continue to support responsible growth and innovation while maintaining financial stability.