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1、NBFCs in India:Growth and 2024 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights re

2、served.2 2The NBFC sector in India has witnessed remarkable transformations since its emergence,with segments such as housing finance,microfinance and consumer finance contributing to its expansion.This growth is driven by various factors,such as a rising middle class,enhanced financial inclusion an

3、d positive policy interventions.Additionally,the sector has benefited from a favorable regulatory framework and a stable macroeconomic scenario.As of 2023,the NBFC sector has reached an impressive size of USD326 billion1,underscoring its expanding influence in the financial domain.The sector has als

4、o shown resilience in terms of sound capital position,improved asset quality,adequate provisioning and higher profitability.Furthermore,the sector has leveraged digitisation to offer alternative financing options,especially to the MSMEs,which face challenges in obtaining loans from traditional banks

5、.With the growth witnessed in the NBFC sector and India reaching an estimate of USD7 trillion GDP by 20301,Indias financial need will rise,creating ample opportunities for NBFCs.Digitisation has been a game-changer for the Non-Banking Financial Company(NBFC)sector,enabling faster and more efficient

6、processes,as well as a superior customer experience.NBFCs are increasingly focusing on digitisation as a key differentiator,with a particular emphasis on the use of super apps to source and partner with customers.This trend is set to continue,as the demand for digital services continues to grow.The

7、role of technology,data and analytics across the value chain is also set to increase,with a particular emphasis on credit and underwriting,collections,fraud management and cyber and data security/privacy.The use of scorecards powered by traditional and new age data sources is becoming increasingly p

8、opular,as NBFCs seek to improve their credit assessment capabilities.Digital collections and the role of data and analytics are also set to increase,as NBFCs seek to improve their collections efficiency.Another area of focus for NBFCs is the lending model,with a particular emphasis on First Loss Def

9、ault Guarantee(FLDG)and co-lending models.The guidelines for FLDG have been a major catalyst for growth in this segment,while co-lending requires further initiatives to scale up this model.Green and sustainable financing is also emerging as a sunrise sector,with NBFCs playing a key role in financing

10、 projects that promote environmental sustainability.Nonetheless,the NBFC sector faces significant challenges,especially from the banking industry.Banks targeting the same customer base as NBFCs will require scale,resulting in intensified competition in the sector.NBFCs will have to explore securitis

11、ation,co-origination and co-lending to sustain their competitiveness in this scenario.M&A activity is also likely,with the capacity to alter the dynamics of the sector.In this report,KPMG in India and Confederation of Indian Industry(CII)offer a holistic view of the NBFC landscape,highlighting the d

12、rivers of its development and expansion.It investigates the impact of technology,data and analytics throughout the value chain of NBFCs.It analyses the emergence of super apps,the potential of digital sourcing and partnerships and the application of data-driven scorecards for credit and underwriting

13、.Moreover,it emphasises the significance of digital tools in collections,fraud management and cyber and data security.Finally,it unfolds the challenge posed by the banking industry and the strategies that NBFCs can adopt to thrive in this competitive scenario.Sanjay DoshiPartner and Head-FS Advisory

14、KPMG in IndiaChandrajit BanerjeeDirector GeneralConfederation of Indian Industry1.NBFCs in India-statistics&facts,Statista,accessed on 26 January24.Foreword 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of in

15、dependent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.300tittleTable of contentsNBFC landscape 4101619253033Evolving business landscape and scope of penetrationRole of technology,data and analytics across the value chainL

16、iquidity and fund managementCompetition faced from the banking industryEvolving regulatory landscapeConclusion 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG In

17、ternational Limited,a private English company limited by guarantee.All rights reserved.3 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a

18、private English company limited by guarantee.All rights reserved.4 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English compan

19、y limited by guarantee.All rights reserved.401NBFC landscape 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limi

20、ted by guarantee.All rights reserved.5The Indian economy was among the fastest-growing in the world before the onset of the COVID-19 pandemic.In the years leading up to the global health crisis,the countrys economic indicators posted gradual improvements.The twin deficits,namely current account and

21、fiscal deficits,narrowed,while the growth-inflation mix showed a positive and sustainable trend.Despite the geopolitical tensions worldwide,Indias economy is expected to grow by 6.21 per cent in FY24,driven by robust domestic demand and strong growth in the manufacturing and services sectors.As the

22、country progresses,demand for credit is likely to remain strong,especially among Micro,Small and Medium Enterprises(MSMEs)and retail,and is projected to grow by 13.514.0 per cent3.NBFCs have emerged as the crucial source of finance for a large segment of the population,including SMEs and economicall

23、y unserved and underserved people.They have managed to cater to the diverse needs of the borrowers in the fastest and most efficient manner,considering their vast geographical scope,understanding of the various financial requirements of the people and extremely fast turnaround times.Non-bank money l

24、enders have played an important role in the financial inclusion process by supporting the growth of millions of MSMEs and independently employing people.The sector has grown significantly,with a number of players with heterogeneous business models starting operations.The last few years have seen a t

25、ransformation in the Indian financial services landscape.The increasing penetration of neo-banking,digital authentication,rise of UPI and mobile phone usage as well as mobile internet has resulted in the modularisation of financial services,particularly credit.9%26%39%49%19%25%34%45%19%25%34%50%MSME

26、 loansGold loansHousing loansAuto loansMarket share of NBFCs in overall credit across select asset classesFY18FY22FY23In terms of asset size-wise mix,housing loans and infrastructure loans continue to account for a major chunk of the overall NBFC portfolio.Microfinance loans have increased their sha

27、re from approximately 2 per cent to 3 per cent between FY19 and FY233.Housing and infrastructure loans are expected to maintain their share in overall NBFC credit.In addition,auto loans,personal loans,MSME loans and microfinance loans are expected to perform better as compared to other segments in F

28、Y24.11191634184123540204060NBFCs-retail credit(in INRtrillion)Banks-retail credit(in INRtrillion)NBFCs retail credit is expected to increase at 1315%CAGR in next three yearsFY18FY22FY23EFY25P54%55%56%52%54%56%58%FY18FY23EFY25PShare of retail credit in total NBFC credit to continue to growNote:P=Proj

29、ected;Retail credit includes housing finance,auto finance,microfinance,gold loans,construction equipment finance,consumer durable finance,MSME loans and education loansSource:Press releases,RBI,accessed on 24 January 20241.1 Economic growth and evolution of the NBFC landscape32%28%27%28%29%29%26%24%

30、25%26%26%25%24%26%27%27%14%14%13%13%14%14%12%12%11%12%13%12%11%10%8%8%1%1%1%2%3%3%3%3%12%13%13%13%13%13%13%12%3%3%3%3%3%4%4%4%3%3%4%4%4%2%7%8%0%10%20%30%40%50%60%70%80%90%100%FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23EDistribution of NBFC credit across asset classesInfrastructureHousingAutoWholesaleMic

31、rofinanceMSMEGoldOthers1.1.1 Key segments1.Indian economy outperforming peers,The Hindu,accessed on 24 January 20242.Press releases,RBI,accessed on 24 January 20243.Crisil MI&A,accessed on 24 January 20244.NBFCs,IBEF,accessed on 24 January 2024Source:Press releases,RBI,accessed on 24 January 2024Sou

32、rce:Press releases,RBI,accessed on 24 January 2024 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by gua

33、rantee.All rights reserved.6After a moderation in growth post the COVID-19 pandemic,NBFCs are back on track with an expected credit growth of 13143 per cent during FY24.The industry is expected to continue to witness the emergence of newer NBFCs catering to specific customer segments.The COVID-19 pa

34、ndemic and consequent acceleration in both adoption of technology and change in consumer habits,as well as increasing availability of data for credit decision-making,has made it possible to build an NBFC lending business without investing large sums to have brick-and-mortar presence on the ground.Ov

35、erall,between FY23 and FY25,research shows NBFC credit will increase at a CAGR of 13153 per cent.As of 30 September 2023,there were a total of 9,3561 NBFCs registered with the Reserve Bank of India(RBI).Based on liability structure,NBFCs have been traditionally categorised into deposit-taking NBFCs(

36、NBFCs-D),which are allowed to raise term deposits and non-deposit-taking NBFCs(NBFCs-ND).In October 2021,the RBI introduced a scale-based regulation for NBFCs to align its regulatory framework and further classify these financial institutions based on their evolving risk profile,considering the evol

37、ution of NBFCs with regard to size,complexity and interconnection within the financial sector1.This framework categorises:NBFCs in the base layer(NBFC-BL)with assets less than INR1,000 croreMiddle layer(NBFC-ML)with assets more than INR1,000 croreUpper layer(NBFC-UL)and top layer(NBFC-TL)which are s

38、pecifically identified by the RBI based on a set of parameters and scoring methodologyA list of 16 NBFCs-UL,identified as per the methodology specified in scale-based regulation for NBFCs,was released on 30 September 20222.1.2 Evolution in NBFC categorisation1.3 Key reasons for growthDeep demographi

39、c and addressable market understanding:With their operations in the unorganised and underdeveloped segments of the economy,NBFCs have created a niche for themselves by understanding what customers want from them and guaranteeing last-miledelivery of goods and services.Tailored product offerings:NBFC

40、s have adapted their product offering to meet the specific characteristics of a customer group and are focused on meeting appropriate needs by carefully analysing this target segment and customising pricing models.Government and central bank Initiatives:The Government of India also unveiled several

41、initiatives aimed at addressing some of the structural issues stressing the small business lending segment.These include granting licenses to account aggregators,initiating the Pradhan Mantri Mudra Yojana(PMMY),launching UPI platforms,unveiling platforms such as TReDS,GeM and Open Network for Digita

42、l Commerce(ONDC)and implementing GST.Wider and effective reach:NBFCs are now reaching out to Tier 2,Tier 3 and Tier 4 markets,distributing the loan across several customer touchpoints.In addition,they are building a connected channel experience that provides an omnichannel,seamless experience of sal

43、es and service 24 hours a day,seven days a week.Co-lending:RBI,in November 2020,issued co-lending norms that enable banks and NBFCs to collaborate for priority sector lending(PSL).Technology advancements and growing fintech ecosystem for improved efficiency and enhanced experience:The use of technol

44、ogy is helping NBFCs customise credit assessment.1.NBFCs,RBI,accessed on 24 January 20242.RBI categorises 16 large financial entities as upper-layer NBFCs,Economic Times,accessed on 24 January 20243.NBFCs AUM to rise 13-15%in FY24 led by 18-20%retail loan growth,Business Line,accessed on 24 January

45、20244.KPMG in Indias analysis based on reports published by RBI,IFC,World Bank 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private En

46、glish company limited by guarantee.All rights reserved.701Data democratisation With the advent of India Stack and the account aggregator framework,the financial services sector is expected to surpass through seamless Know Your Customer(KYC)and data-driven credit decisioning processes.These governmen

47、t sources of data will ensure greater accessibility and reduced opacity.With the addition of more data sources,the India Stack and Account Aggregator are expected to drive the digital revolution.02Credit enablement frameworks RBIs push for digital credit enablement through its frictionless platform

48、and the advent and adoption of ONDC and Open Credit Enablement Network(OCEN)are expected to improve credit penetration,with NBFCs playing a significant role.1.5 Digitization1.4 DigitisationNBFCs are embracing digitisation to achieve better operational efficiency,provide better customer experience,re

49、duce costs and be complaint to the regulatory guidelines.Although the NBFCs have been facing a tough competition from the public and private sector banks and MFIs in areas such as market share,customer acquisition,asset quality and technology enhancements,they have been initiators of frugal innovati

50、on with respect to digital initiatives and innovations.NBFCs today have proved that they have both the appetite and talent to compete with larger institutions for customer attention.And the tools used to compete are cutting-edge popular technologies including cloud,low-code/no-code,data lakes and Ge

51、nAI to evolve concepts such as application modernisation,super apps,data transparency and robust information security to provide seamless customer and employee experience.03Frictionless journeys Digitisation has led to the development of digital-first STP journeys for disbursement as well as transfo

52、rmed more complex journeys.The underlying systems such as loan origination system and lead management system,have transformed to enable these journeys.04Data-enabled underwriting and portfolio monitoring With data democratisation,advent of credit enablement frameworks and advancement in the field of

53、 analytics,underwriting has evolved with the use of new-age lending models,which power instant credit decisioning.Portfolio monitoring is expected to evolve with access to richer and recent data sets,which will be crucial for developing robust EWS.05Advent of AI and large language models(LLM)The adv

54、ent of GenAI and LLMs will revolutionise NBFC operations with adoption for sourcing,servicing,collections etc.06Evolving regulatory landscape The regulatory landscape is expected to evolve with the focus being on adopting digital,customer service and customer interest protection,data privacy and pro

55、tection.These themes will drive regulations as financiers will need to align with consent,data storage,data privacy and other norms with the adoption of digital ways of working.1.KPMG in Indias analysis based on reports published by RBI,IFC,World Bank2.RBI Guidelines issued on 02 September,RBI press

56、 release,accessed on 24 January 20243.RBI mandates for NBFC under Digital Lending,RBI press release,accessed on 24 January 2024 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affili

57、ated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.8NBFCs in India,vital contributors to the financial ecosystem,face evolving challenges in securing funds.This article examines the emerging sources of funds and delves into the impact of regulator

58、y measures on the ease of raising capital for NBFCs.ItemsAt the end of March 2022At the end of March 2023At the end of September 2023Percentage variationFY2122FY2223Debenture10,14,611(39.3)11,10,234(37.0)11,45,536(36.1)3.39.4Bank borrowings9,20,555(35.6)11,33,221(37.7)11,97,626(37.8)18.823.1Borrowin

59、g from FIs69,078(2.7)89,982(3.0)99,844(3.1)21.330.3Inter-corporate borrowings89,896(3.5)1,05,184(3.5)1,04,148(3.3)15.517.0Commercial paper70,266(2.7)84,366(2.8)1,14,109(3.6)-3.220.1Borrowing from government18,562(0.7)18,750(0.6)18,758(0.6)-3.01.0Subordinated debts72,349(2.8)72,510(2.4)68.285(2.2)4.5

60、0.2Other borrowings3,29,182(12.7)3,87,991(12.9)4,21,653(13.3)10.617.9Total borrowings25,84,50030,02,23931,69,9599.916.21.5 Navigating funding challenges:Emerging sources and regulatory impact for NBFCs in IndiaTraditional financing channels and challengesTraditionally,NBFCs in India heavily relied o

61、n conventional financing channels such as bank borrowings and issuing debentures.However,in recent times due to multiple regulatory support and options NBFCs has explored alternative funding avenues.1.5.1 Sources of borrowings of NBFCs2(Amount in INR crore)Source:Non-Banking Financial Companies Repo

62、rt,RBI,published on 27 December 20231.Master Direction NBFC Capital Adequacy Requirements,RBI,accessed on 24 January 20242.NBFCs:Raising Money and Risk Management,RBI,accessed on 24 January 20243.Private Equity Investment in Indias NBFCs,McKinsey&Company,accessed on 24 January 20244.Basel III:Liquid

63、ity Coverage Ratio and Liquidity Risk Monitoring Tools,RBI,accessed on 24 January 20245.Corporate Governance in Non-Banking Financial Companies(NBFCs),SEBI,accessed on 24 January 2024 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPM

64、G global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.9Capital adequacy requirementsThe regulatory directive will increase in risk weights for consumer lending to 125 per cent from 100 per cent.

65、This,in turn,will impact the NBFCs with higher share of such loans in their portfolio.Capital adequacy parameter plays a significant role;hence it is very critical for NBFCs to maintain a balance of secured and unsecured mix in their portfolio.Liquidity coverage ratio(LCR)The RBIs implementation of

66、LCR has compelled NBFCs to maintain high-quality liquid assets.This ensures short-term liquidity resilience but demands a reassessment of liquidity management strategies.Bank borrowing for NBFCs with higher ratingThe risk weights for bank exposure to NBFCs with credit rating A and above have been in

67、creased by 25 per cent.This implies that the bank will have to maintain higher capital on loans to such NBFCs,which may impact the funding profile of such NBFCs.The cost of borrowing funds from banks may also increase as the banks could increase the rate of interest to offset their higher cost of ca

68、pital.NBFCs in India face a challenging yet transformative landscape.By exploring alternative funding sources and aligning strategies with regulatory measures,these financial entities can secure their future growth and resilience.NBFCs are increasingly turning to securitisation,selling loan portfoli

69、os to investors and collaborating with Asset Reconstruction Companies(ARCs)to manage risk and optimise balance sheets.Securitisation and asset reconstruction:Investments from private equity and venture capital have emerged as robust alternatives for NBFCs.This influx not only injects capital but als

70、o brings strategic guidance.Private equity and venture capital:Way ahead1.5.2 Emerging sources of funds additional to the traditional options1.5.3 Impact of regulatory measures on funding requirements:1.Master Direction NBFC Capital Adequacy Requirements,RBI,accessed on 24 January 20242.NBFCs:Raisin

71、g Money and Risk Management,RBI,accessed on 24 January 20243.Private Equity Investment in Indias NBFCs,McKinsey&Company,accessed on 24 January 20244.Basel III:Liquidity Coverage Ratio and Liquidity Risk Monitoring Tools,RBI,accessed on 24 January 20245.Corporate Governance in Non-Banking Financial C

72、ompanies(NBFCs),SEBI,accessed on 24 January 2024 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guara

73、ntee.All rights reserved.10 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reser

74、ved.1002Evolving business landscape and scope of penetration 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limi

75、ted by guarantee.All rights reserved.11Sub-sectors such as consumer durables,vehicle loans,microfinance and affordable housing are witnessing a surge in demand.This growth is underpinned by strong macroeconomic factors and an increase in private consumption.NBFCs,with their agile operation models,ar

76、e well-positioned to cater to this burgeoning demand.The Indian economy continues to show robust growth,with the RBI projecting a 6.51 per cent GDP growth rate.This economic resilience is paving the way for significant credit growth for NBFCs.Notably,the MSME sector,along with several retail credit

77、segments,including consumer durables,vehicle loans,microfinance and affordable housing,are leading the growth trajectory for NBFCs.The NBFC sector is expected to experience robust growth driven by high credit demand across these segments.The MSME sector is expected to play a significant role in the

78、India growth story,with their contribution to the GDP expected to increase from 30 per cent in FY23 to 40 per cent in five to seven years1.Formal credit deployment will play a crucial role in the growth of this sector and NBFCs will be a critical contributor.The key contributors are as follows:MSMET

79、radeWith the rapid growth of e-commerce as a sector,government initiatives,such as ONDC and Unified Logistics Interface Platform and demand for local products are expected to drive this sector.The governments push to increase manufacturing output,as well as focus on green energy and the electronic v

80、ehicle(EV)ecosystem,is expected to propel the MSME growth and create financing needs for capital and operational expenditure.Tourism and hospitality will be the key sectors,which will provide significant platform scope for NBFCs.ManufacturingServicesRetailcredit2.1.1 Key growth sectors in NBFC2.1 Ev

81、olving business landscape and key growth sectorsPolicy and government enablersThe government has introduced a series of reforms and initiatives to bolster the MSME and retail credit sectors.These include the Pradhan Mantri Mudra Yojana(PMMY),Credit Guarantee Fund Trust for Micro and Small Enterprise

82、s(CGTMSE),digitisation initiatives such as India Stack,JAM(Jan Dhan-Aadhaar-Mobile)trinity,Udyog Aadhaar for easier business registration,ONDC and the ambitious National Infrastructure Pipeline under the Gati Shakti programme.Additionally,the Credit Linked Capital Subsidy Scheme is aimed at facilita

83、ting technology upgradation for MSMEs.In the retail credit space,policies such as the PMAY are catalysing growth in the affordable housing segment.The push towards vehicle electrification and the Vehicle Scrappage Policy are driving the vehicle loan segment.Microfinance institutions are being empowe

84、red through initiatives such as PMMY and a focus on on-lending and co-lending models.1.Crisil MI&A,RBI,and KPMG in Indias analysis based on reports published by RBI,IFC,World Bank2.RBI keeps repo rate at 6.5%,raises growth forecast,The Hindu,assessed on 24 January 20243.Ministry of External Affairs,

85、indbiz.gov.in,accessed on 24 January 20244.NBFC article,PMO India,accessed on 24 January 20245.NBFC report,National Investment Promotion&Facilitation Agency,accessed on 24 January 2024 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KP

86、MG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.122.2 Increasing focus on digitisation by NBFCs for customer experience Lead generation and customer onboardingMost of the NBFCs have imple

87、mented multiple applications that work together to provide an integrated customer experience.These applications include customer-facing mobile apps,customer relationship management(CRM)systems for lead generation,lead management solutions,digital onboarding solutions,loan origination systems and eve

88、n elements of core banking solutions to cover significant parts of the customer journey.To generate leads,NBFCs have formed partnerships with multiple sourcing platforms,allowing them to reach a larger number of potential customers.One of the leading NBFCs in the home loan segments has 93 per cent o

89、f the customers registered on mobile applications.For customer onboarding,NBFCs are leveraging paperless processes by utilising eKYC,C-KYC,video KYC,e-documentation,DigiLocker,account aggregators,credit bureaus and geo tagging services.For some of these services,NBFCs are riding on the wave of open

90、banking technology by partnering with the fintechs that are operating in this space.NBFCs are utilising conversational AI in chatbots to address customer inquiries,offer personalised products,provide product recommendations and identify opportunities for cross-selling and up-selling.This strategic i

91、mplementation enables NBFCs to enhance customer service,streamline operations by reducing the size of customer service teams and improve overall efficiency by automating routine tasks.This approach represents a true extension of omnichannel capabilities.Digitisation in the front office operationsThe

92、 NBFC sector in India stands at a juncture of significant transformation,driven by robust economic growth,a conducive policy environment and an increasing emphasis on financial inclusion.As these financial institutions continue to diversify their portfolio and adapt to the changing market dynamics,t

93、hey will be prolonged to play a crucial role.Digital will drive the NBFC growth story,with use cases adopted across the value chain from sourcing to loan closure/cross-sell and upsell.Hyper-personalisation of services,adoption of regional languages,product innovation and partnerships will drive grow

94、th.The evolving customer persona in terms of a mobile-first approach,rise of influencers in the digital space and demand for seamless and instant service will drive the NBFC growth story.Partnerships and platforms will be crucial for NBFCs for sourcing and India Stack will be crucial for underwiring

95、,KYC and portfolio monitoring.The digital age will necessitate stronger cyber and data protection practices to ensure sustainable operations.The digital story will drive NBFCs from the perspective of experience,increased sourcing avenues,operational efficiency and risk management.1.Annual Report FY2

96、3,Home First,accessed on 24 January 20242.Annual Report FY23,Tata Capital,accessed on 24 January 2024 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG Internation

97、al Limited,a private English company limited by guarantee.All rights reserved.13Credit underwriting To enhance credit underwriting processes,NBFCs have established partnerships with fintech companies for fraud risk management,income assessments,GST validations,MCA validations and video PD.Additional

98、ly,NBFCs have collaborated with fintech firms that provide access to alternative data,which aids in the creation of underwriting models and digital scorecards.The implementation of GenAI enables AI-driven predictive analytics for better risk assessment by analysing a broader range of data points.By

99、adopting these approaches,NBFCs can achieve a more precise and holistic assessment of an applicants creditworthiness,thereby mitigating the risks associated with bad loans.Loan documentation NBFCs are leveraging technology to generate digital loan documents and facilitate e-Stamping and e-Signing of

100、 these documents.The e-Signing process utilises Aadhaar-linked mobile numbers,resulting in enhanced customer experience and improved operational efficiency.Notably,a prominent NBFC in the home loan segment has successfully executed 60 per cent of loan agreements through e-Stamping,with 46 per cent o

101、f agreements being digitally signed.Loan disbursementsNBFCs can directly disburse funds to required accounts using various digital payment methods.This enables seamless and real-time fund transfers to the intended accounts.These advancements significantly contribute to expediting the loan disburseme

102、nt process and facilitating seamless customer interactions.Digitisation in the middle-office operationsDigital collectionsNBFCs are actively investing in expanding their digital presence in the collections process,which traditionally relied heavily on physical branches and manual procedures.Nowadays

103、,technology and process innovation allow mainstream retail customers to have the option of making EMI payments by accessing digital payment channels such as UPI,cards,net banking and e-NACH.One of the leading NBFCs has reported that more than 90 per cent of its collections are now conducted through

104、digital channels.The process of customer service has undergone significant changes with the introduction of WhatsApp banking and advanced chatbots.With the help of emerging technologies such as GenAI,several customer queries can be resolved by conversational bots.These chatbots offer more engaging a

105、nd personalised experiences,provide round-the-clock support and reduce the workload of human customer service representatives.One of the leading NBFCs has reported that 75 per cent of its customer transactions are taking place through digital platforms.Customers now can interact through various chan

106、nels,including web,mobile applications,WhatsApp,chatbots and voice bots.The NBFC has observed a significant increase in the usage of chat-based servicing,with over 800,000 interactions occurring per month on voice and chat-based platforms.Digitisation in the back-office operations1.Annual Report FY2

107、3,Home First,accessed on 24 January 20242.Annual Report FY23,Tata Capital,accessed on 24 January 2024Customer servicing 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated wit

108、h KPMG International Limited,a private English company limited by guarantee.All rights reserved.14NBFCs in India have navigated a transformative path in their lending methodologies,adapting to the ever-evolving financial landscape.Two noteworthy approaches that have garnered attention and reshaped t

109、he lending landscape are the First Loss Default Guidelines(FLDG)model and the co-lending model.The First Loss Default Guarantee(FLDG)or Default Loss Guarantee(DLG)model represents a paradigm shift in the approach of NBFCs towards collaborative lending.These guidelines,mandated by the RBI,allow NBFCs

110、 and other Lending Service Providers(LSPs)to extend credit portfolios with a guarantee against default losses.Endorsed by the RBI,this model provides a robust risk mitigation mechanism and safety net by guaranteeing coverage for the initial loss incurred in lending transactions.Firstly,it enhances t

111、he risk appetite of NBFCs and banks by instilling confidence in banks and other regulated entities to collaborate with NBFCs and LSPs.Furthermore,the NBFCs benefit from these arrangements by transferring/sharing the risks and heavy cost of funds associated with loan portfolios.This encourages bankin

112、g sector to invest in lending to diverse segments of the economy through NBFCs.The RBIs guidelines play a pivotal role in ensuring the models effectiveness,aligning it with regulatory standards and supervisory measures.By mandating adherence to stringent criteria on DLG providers and LSPs(eligibilit

113、y criteria for DLGs and cap on default loss guarantee up to 5 per cent and tenor),the central bank promotes financial stability and consumer protection.As the guidelines only apply to digital lending arrangements,REs and NBFCs are encouraged to introduce technology-enabled lending products,thereby c

114、ontributing to enhanced credit penetration and lower operational costs.NBFCs can leverage this opportunity to build partnerships with banks to build and scale up loan portfolios in underserved segments while incurring lower cost of funds and obtaining increased liquidity.010203Complementing the FLDG

115、 model,which promotes collaboration among NBFCs and banks,the co-lending model further inculcates confidence in collaborative partnerships.In this model,NBFCs join forces with traditional banks to co-finance loans,leveraging the strengths of both entities.The collaborative nature of co-lending enabl

116、es NBFCs to tap into the extensive reach and resources of banks while banks benefit from the agility and specialised knowledge of NBFCs in catering to specific market segments.Alternative funding opportunities like the ones mentioned are great opportunities for small fintechs,NBFCs and can also be e

117、xtended to unrated NBFCs or funded by organised lenders.These collaborative models will boost the digital lending space and provide safeguards towards regulatory capital and maintaining quality growth in portfolio.2.3 Emerging lending modelsBlueprint to scale up co-lending modelTo successfully scale

118、 up co-lending initiatives,NBFCs need to meet certain requisites.Some of them are as follows:Technological infrastructure NBFCs need to invest in scalable and agile technology that facilitates seamless integration with partner banks.This not only streamlines the loan origination and approval process

119、es but also enables quick decision-making,a critical factor in the competitive lending landscape.First Loss Default guidelinesCo-lending modelsRobust risk management framework Efficient credit assessment tools and risk mitigation strategies must be in place to navigate the complexities of collaborat

120、ive lending.Clear risk-sharing agreements between the NBFC and the partner bank are crucial to ensure a fair distribution of responsibilities and liabilities.Alignment of target segments and policy norms with the bank Negotiate at a win-win arrangement,process optimisation with maximised automation

121、and seamless integrations with low-code solutions.Extensive strategic planning Transformation in organisational structure,synchronising operational processes and matching the policy and technological compatibility.A well-defined operational framework that outlines the roles,responsibilities and cont

122、ributions of each party is essential.Regular monitoring and evaluation mechanisms Assess the performance of the co-lending arrangement and make necessary adjustments.2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organizat

123、ion of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.15NBFCs,a beacon of resilience in financial infrastructure The Indian financial sector has successfully weathered numerous challenges,demonstrating remarkable

124、 resilience in the face of disruptions.It has successfully navigated through uncertain economic climates marked by high inflation and constrained consumption,managed large-scale financial defaults or mitigated the unexpected breakdowns in financial intermediation caused by the COVID-19 pandemic.With

125、 Indias GDP steadily approaching a 7 per cent1 annual growth rate,inflation being subdued and credit offtake growth reaching double digits,it sets the right pitch for NBFCs to embark towards the next wave of strong growth.India needs USD200 billion annually to meet the net-zero target and about USD2

126、.5 trillion for its 2030 Nationally Determined Contribution(NDC)commitments.Despite this scale of the ask,the annual flows towards climate finance annually have fallen below USD50 billion,with a concentration on clean energy and energy efficiency2.With regards to compliance,risk management,customer

127、acquisition or product development,the new paradigm would require NBFCs to scale on the sustainability agenda and embrace much-needed means of integrating environmental,social and governance(ESG)aspects in the way they run their business.This not only holds the key towards unlocking newer and cost-e

128、ffective sources of raising capital through means such as green bonds and sustainability-linked loans or equip themselves to assess emerging climate and social threats in taking new exposures but also,for that matter,growing the product suite towards catering to climate and transition requirements.G

129、iven the width and depth of the NBFC network across India,this will lead to the next level across avenues such as efficient MSMEs,affordable housing,energy transition,improved EV adoption,sustainable agriculture,sustainable tourism and financial inclusion.Green and sustainable finance avenues for NB

130、FCsNBFCs are uniquely placed in the Indian financing setup unlike the banks which focus on funding large-scale infrastructure projects.Given this flexibility on the ticket size as well as risk profiles,there is no shortage of avenues.For instance,financing climate and transition funding across MSMEs

131、 and startups,or segments such as EVs or niche products for clean tech equipment manufacturing.This offers NBFCs a compelling advantage to invest in green product development to cater to nuanced loan structures and financing for the sustainable shift.For instance,a sustainability-linked loan(SLL)wit

132、h an interest rate linked to performance indicators such as a reduction in emissions and an increase in direct employment.Similarly,a moderately and competitively priced loan for greater offtake in mass-consuming segments such as EVs.The road ahead for non-banks to take lead on sustainability Opport

133、unities and levers for business growth for NBFCsNBFCs have various ways to grow their business,including obtaining affordable loans from multilateral development banks and using blended finance instruments to access concessional capital.Additionally,NBFCs can transform their operations by utilising

134、digital tools and resources,which not only reduces their environmental impact but also improves governance and resource management.Overall,opportunities and sustainability are important drivers for growth in the NBFC sector and being innovative and ahead of the curve will lead to success in the mark

135、et.1.Union Budget presented by GOI2.Landscape of Green Finance in India report,Climate Policy Initiative3.KPMG in Indias analysis based on reports published by RBI,IFC,World BankSustainable finance Opportunities for NBFCsElectric vehicles,sustainable agriculture,solar rooftops,MSMEs,financial inclus

136、ionAsset sideSustainability-linked loans,green bonds,multilateral financing,blended finance structures Liability sideDiversification of loan book,addressing E&S risks In portfolio,lowering cost of capital,net-zero trajectory Business outcomes2.4 The rise of green and sustainable finance NBFCs are le

137、ading the change 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.16 2024

138、 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.1603Role of technology,data

139、and analytics across the value chain 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rig

140、hts reserved.17Technology is increasingly playing a pivotal role in every aspect of NBFC operations.It has become a key enabler for providing superior customer service,effective credit decisioning and disbursement,portfolio monitoring and collections as well as for other mid-and back-office function

141、s.3.1 Role of technology in the NBFC sectorEmergence of super apps and partnerships:Super apps are increasingly becoming one-stop shops to address customer needs from an end-to-end perspective.While super apps are prevalent in the banking industry or e-commerce perspective,NBFCs will have a crucial

142、role in terms of embedding their products and servicing customers through app-enabled journeys.The key to success lies in delivering seamless experiences,instant decision-making and superior customer satisfaction.Emergence of frictionless enabling platforms/protocols:RBIs frictionless platform for c

143、redit enablement and OCEN are game changers in the financial services industry.These platforms will ease integration efforts and provide rich data sources that can be leveraged across the loan lifecycle.Adoption of digital-first and paperless journeys:NBFCs are pivoting to digital-first and mobile-f

144、irst journeys to ensure operational ease,better controls and superior customer experience.Increased adoption of analytics:Analytics has become crucial in the current business context with multiple use cases across the following:Sourcing Pre-approved databases to ensure faster sanctions and attractiv

145、e offers for customersCustomer lifetime value Analytics to maximise customer lifetime value and ensure product suite penetration is optimised as well as partnerships are created to provide comprehensive offerings to customers as well as enable cross-/up-sell with a greater degree of successCredit de

146、cisioning Credit decisioning has been revolutionised with financial and nonfinancial data sources,which has increased the accuracy of scorecardsPortfolio monitoring Accurate portfolio monitoring and evolved EWS leading to better collectionsEmergence of GenAI and LLM:GenAI and LLM will be critical fo

147、r scaling while ensuring a hyper-personalised experience is provided in a cost-effective manner.Emergence of capabilities to interact with customers at a dialect and sub-dialect level is critical for raising awareness as well as for sourcing,servicing and collections.3.2 Five key themes which are dr

148、iving technology in the NBFC sector1.KPMG in Indias analysis based on reports published by RBI,IFC,World Bank 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG Int

149、ernational Limited,a private English company limited by guarantee.All rights reserved.18The themes will define the way technology is adopted and the following aspects will drive technology:Flexibility in terms of integrations and adapting to business needsFaster time to market for development and up

150、datesScalability in a cost-effective mannerResponsiveness and uptime to ensure seamless experienceSecurity to ensure adequate controls are in place from data perspectiveWith increased technology adoption,risk management and controls become extremely important.Aspects such as access control,cloud/dat

151、a centre security,integrations management and validations become crucial and features to be careful about from a future context.The rapid adoption of automation,digital mechanisms,outsourcing vendors and emerging technologies such as AI/ML has raised concerns about operational resilience,cyber secur

152、ity and privacy.NBFCs need to create robust mechanisms to address these concerns.3.3 Cyber security and privacyCyber securityCyber security is one of the significant threats firms are currently facing and it consistently ranks among the top risks globally.Cyberattacks can take various forms and shap

153、es and derail the financial stability of a country.According to some estimates,the Indian financial services sector witnessed approximately 1.3 million1 cyberattacks last year,which proves that cyber threats outpace technology advancements.While the regulator has established comprehensive regulation

154、s,the onus is on regulated entities for robust adoption.Recently,some regulated entities have been in the news because of the non-availability of critical applications,resulting in inconvenience to customers.It is imperative for NBFCs to design and implement robust BCP and DR plans to minimise busin

155、ess and operational disruptions.It requires the creation and deployment of a well-defined BCP,optimal investments in technology and oversight from the Board and relevant IT/IS committees.The generation,collection,processing and storage of vast amounts of data raises several concerns on the privacy f

156、ront.Accordingly,regulators globally have recognised the need to maintain accountability when collecting and processing personal data of customers.This will require NBFCs to build controls around personal data processing activities to avoid penalties and disruptions.It is imperative to integrate pri

157、vacy-preserving controls/practices in the operating strategy for NBFCs.Operational resilienceData privacy1.Decoding the 2023 Cybersecurity Landscape in BFSI,The Banking and Finance Post,assessed on 24 January 20242.KPMG in Indias analysis based on reports published by RBI,IFC,World Bank 2024 KPMG As

158、surance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.19 2024 KPMG Assurance and Consultin

159、g Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.1904Liquidity and fund management 2024 KPMG Assurance and

160、 Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.204.1 Traditional funding avenues for NBFCs 4.a

161、 Different sources of funds for NBFCsNBFCs in India actively seek diverse funding avenues to meet their multifaceted financial needs.Their need for funding arises from their role in providing credit to sectors underserved by traditional banking.Traditional sources including bank borrowings,debenture

162、s and commercial papers,play a crucial role in fulfilling these funding requirements.This funding sustains their operations,facilitates liquidity and supports the crucial function of fostering financial inclusion by reaching segments that may be overlooked by traditional banking institutions.The ong

163、oing exploration of funding avenues underscores the dynamic nature of NBFCs in navigating the evolving financial landscape to efficiently cater to the diverse needs of the Indian economy.Item descriptionMarch 2021March 2022March 2023September 20231.Share Capital,Reserves and Surplus26.729.429.127.92

164、.Total Borrowings63.060.661.562.1of which:19.820.621.922.22.1 Borrowings from banks0.40.40.30.42.2 CPs subscribed by banks3.02.92.72.42.3 Debentures subscribed by banks3.02.92.72.4Total from banks(2.1+2.2+2.3)23.223.825.025.02.4 CPs excluding 2.21.61.41.51.92.5 Debentures excluding 2.322.820.419.519

165、.63.Others10.210.09.510.0Total100.0100.0100.0100.0Irrespective of whether an NBFC is authorized to accept deposits from the public or not,they are allowed to accept Inter Corporate Deposits(ICDs).In the case of deposit-taking NBFCs,retail deposits have traditionally played a significant role in meet

166、ing their stable long-term funding needs,provided there is enough volume of such deposits.DepositsEquity is the most flexible form of capital available for NBFCs.Considering the onset of Internal Capital Adequacy Assessment Process(ICAAP)norms,it has become imperative for NBFCs to hold additional fr

167、ee equity.Equity capital(including reserves and surplus)accounted for approximately 2629 per cent(refer to the table above)of the total funding available to NBFCs between March 2021 and September 2023.Equity1.KPMG in Indias analysis based on reports published by RBI,IFC,World BankSource:RBI Stabilit

168、y Report 2023 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.21Debentur

169、es(long-term debt instruments)and commercial papers(short-term debt instruments)serve as additional sources of stable funding for NBFCs.These debt instruments contribute to 25 per cent(refer to the chart on the right side)of their funding.According to the RBI financial stability report of December 2

170、023,NBFCs constitute a significant portion of the corporate bond issuers.NBFCs that are issuing debt instruments are largely funding it through a public issue.(refer to the chart on the right side)Debentures and commercial papers020406080100BanksBody corporatesFinancial institutionsHFCNBFCPSUSmall F

171、inance BankTrustPrivate placementPublic issueNBFCs traditionally receive a majority of their funding from banks as debt.This provides NBFCs stable funding which has increased over time,as has the share of Bank credit to NBFCs.(refer to the chart on the right side)This funding can be in terms of dire

172、ct borrowings from banks or can be through commercial papers or corporate bonds purchased by banks.Funding from banks810121416Jun-21Aug-21Oct-21Dec-21Feb-22Apr-22Jun-22Aug-22Oct-22Dec-22Feb-23Apr-23Jun-23Bank lending to NBFCsLending to NBFC as a share of bank credit(RHS)7891011per centlakh croreSour

173、ce:RBI Stability Report 2023Source:RBI Stability Report 20231.KPMG in Indias analysis based on NBFC report published by RBI 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated

174、 with KPMG International Limited,a private English company limited by guarantee.All rights reserved.22Foreign Direct Investment(FDI)FDI is a crucial funding stream for NBFCs,providing access to cheaper foreign credit as well as strategic partnerships.FDI injects equity that strengthens the financial

175、 stability of NBFCs and supports their growth and expansion.In addition to capital,foreign investors bring valuable expertise in risk management,technology and regulatory compliance,which enhances the operational frameworks of NBFCs and improves their competitive position in the financial market.How

176、ever,FDI in NBFCs is subject to regulatory guidelines from the RBI to ensure the stability of the Indian financial system.Fintech partnershipsIn addition to being a funding avenue for NBFCs,fintech partnerships offer technological advancements,data analytics capabilities and enhanced customer reach.

177、This enhances the overall efficiency of the NBFC and its ability to compete in the rapidly changing financial market of India,giving the company an edge over other peers.Co-lendingCo-lending,also known as co-origination,is a collaborative lending model where two or more financial entities come toget

178、her to jointly extend a loan to a borrower.These entities then share the risks and rewards based on pre-agreed terms.This is typically an arrangement between a bank and an NBFC.If used accurately,NBFCs can rely on this for increased liquidity and profitability.Securitisation of assetsSecuritisation

179、is a vital funding avenue for NBFCs.This process involves converting illiquid loan portfolios into tradable securities through special purpose vehicles(SPVs),hence unlocking additional liquidity.By issuing these securities,NBFCs obtain upfront capital,hence are able to facilitate lending activities.

180、Securitisation offers additional financial flexibility to NBFCs and more diverse products for investment in the financial market.Green bonds and sustainable fundingGreen bonds are one of the leading avenues for climate-friendly sustainable funding.If an NBFC is taking a step towards being more envir

181、onmentally friendly,they can issue green bonds which provide an easy connection for the investors to make positive social and environmental impacts.This makes green bonds very attractive for investors,more so for institutional investors such as banks.Venture capital and private equityVenture capital

182、 and private equity are extremely desirable emerging avenues off funding for NBFCs.This mode of funding offers significant operational flexibility to NBFCs compared to other avenues since there is no obligation to pay dividend immediately.In the current market where,rapid changes are taking place in

183、 the regulatory landscape for NBFCs,NBFCs should err on the side of caution and keep additional free capital.It is important for the management of NBFCs to identify the various sources of funding accessible to them as well as identify the advantages and disadvantages of each funding avenue.This will

184、 prove imperative for ensuring flexibility of operations at the same time balancing the cost of capital.4.2 Emerging funding avenues for NBFCs1.KPMG in Indias analysis based on reports published by RBI,IFC,World Bank2.RBI Stability Report 2023,RBI,accessed on 24 January 20243.RBI NBFC Report Septemb

185、er 2023Public deposits(PD)It is a critical source of funding that turned around and increased during FY2223.PD is mainly beneficial as they are comparably lower on costs,longer maturity,helps in diversification by reducing dependencies on specific lenders or capital markets and helps in brand imagin

186、g.With the recent addition of upper layer NBFCs,this acts as an extremely critical opportunity for NBFCs with good liquidity.In response to dynamic market demands,NBFCs in India are proactively embracing diverse funding channels.For enriching the NBFCs landscape,foreign direct investment serves as a

187、 gateway for international capital.Additionally,securitisation strategies are being employed to convert loans into tradeable securities,thereby improving the companys liquidity.Collaborative co-lending models,often forged with fintech partners,present innovative financing solutions.Simultaneously,ve

188、nture capital injections offer crucial equity support,fostering NBFC expansion and innovation.These emerging funding avenues underscore the sectors adaptability,leveraging global investments,financial markets and strategic collaborations to ensure sustained financial robustness in an ever-evolving l

189、andscape.2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.23Cumulative mi

190、smatch as a percentage of outflows over next yearNo.of NBFCs having liquidity mismatchBaselineMediumHighOver 50 per cent1(0.1)2(0.3)3(0.8)Between 20 and 50 per cent3(0.8)3(1.3)3(1.2)20 per cent and below2(0.4)12(8.8)28(13.0)Note:Figures in parenthesis represent percentage share in asset size of the

191、sample.4.3.1 Liquidity risks in NBFC4.3.2 Measures taken by NBFCs for liquidity managementNBFCs are required by the RBI to report their liquidity position via the Structural Liquidity(SLS)and the Short-Term Dynamic Liquidity(STDL)Statements.These involve maturity bucket analysis and gap and mismatch

192、 analysis.In addition to the above,NBFCs are also required to assess their Liquidity Coverage Ratio(LCR)on a daily basis,which is a stressed measure of short-term liquidity.Currently,systematically important NBFCs are required to maintain a minimum of 85 per cent LCR.ST liability to total assetsLT a

193、ssets to total assetsCP to total assets(RHS)Sep-22Mar-23Sep-2300.511.52.52070605040302010per centper centLiquidity stock measures4.3 Liquidity management in NBFCsRegulatory requirementsSource:RBI Stability Report 2023Source:RBI Stability Report 20231.KPMG in Indias analysis based on reports publishe

194、d by RBI,IFC,World BankLiquidity management is imperative for any financial institution to ensure financial stability and meet short-term obligations.NBFCs in India employ various practices to maintain optimal levels of liquid assets,often balancing the need for profitability and risk mitigation.NBF

195、Cs are focused on diversifying funding sources considering most NBFCs cannot depend on the large-scale diversification offered by retail deposits.Liquidity stress testing,robust cashflow projections and monitoring of maturity profiles are integral to liquidity management in NBFCs.Guidelines enforced

196、 by RBI have been important cornerstones in shaping effective and sound liquidity management strategies that safeguard NBFCs against market fluctuations 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of indepe

197、ndent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.24NBFCs traditionally receive a majority of their funding from banks as debt.This provides NBFCs stable funding which has increased over time,as has the share of Bank cred

198、it to NBFCs.(refer to the attached chart)This funding can be in terms of direct borrowings from banks or can be through commercial papers or corporate bonds purchased by banks.Interest rate risk management practices in NBFCs aim to mitigate potential adverse impacts on earnings and capital caused by

199、 fluctuations in interest rates.NBFCs employ strategies,such as interest rate derivatives and matching between rate sensitive assets and liabilities,to hedge against interest rate volatility.Robust risk measurement models assess the impact of rate changes and help with prudent decision making.Effect

200、ive interest rate risk management enhances financial resilience and ensures that NBFCs can adapt to interest rate movements while sustaining profitability and safeguarding against potential risks.Interest Rate Risk in the Banking Book(IRRBB)RBI has released the final guidelines for IRRBB in February

201、 2023,for banks.This implies that RBI is strengthening its regulatory framework for interest rate risk management.This would have implications for NBFCs wherein they may also be required to adopt the more advanced and robust framework based on BCBS-issued guidelines on IRRBB in the near future.This

202、framework includes behavioural analysis,automatic interest rate options and both economic value of equity and net interest income analysis under 6 different shocks.Reporting requirementsNBFCs are required by the RBI to report their interest rate sensitivity position via the Interest Rate Sensitivity

203、(IRS)statement.This involves maturity bucket analysis and gap and mismatch analysis.Other quantitative measuresOther approaches that can be adopted to track their interest rate risk position are traditional gap analysis,duration gap analysis and the market value of equity approach.4.4 Interest rate

204、risk management in NBFCsFor loans and advances which allow for behavioural options,such as prepayment,behavioural analysis must be conducted to incorporate the impact of behavioural tendencies into the projected cashflows for efficient tracking of the liquidity position.Similarly on the liability si

205、de for deposit-taking NBFCs,early-withdrawal rate analysis and non-maturity deposit analysis should be conducted.Behavioural analysisThe company must conduct scenario analysis to consider scenarios in which it may face a liquidity crunch and proactively have a liquidity contingency plan in place in

206、case the scenario arises.What-if scenario analysisNBFCs may adopt the“Stock”approach for liquidity management,which provides a snapshot of the current liquidity position.It is complemented by the“Flow”approach which forecasts future cashflows and assesses the sustainability of liquidity over time.NB

207、FCs should also consider stress testing for liquidity.Other quantitative measuresSenior management of the company should be informed about the companys liquidity position.This can be done through various methods,one of which is through setting risk tolerance limits beyond which the senior management

208、 and subsequently the board should be informed.These tolerance limits should ideally be based on quantitative measures being tracked regularly.The senior management should guide the setting up of the initial liquidity management framework of the company and thereafter approve any changes in this.Inv

209、olvement of senior management1.KPMG in Indias analysis based on reports published by RBI,IFC,World Bank2.RBI Stability Report 2023,RBI,accessed on 24 January 2024 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization

210、 of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.25 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent membe

211、r firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2505Competition faced from the banking industry 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organizat

212、ion of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.26Banks exploring previously uncharted territoryAs traditional customer pools start to dry up,both public and private banks are expanding their nets to captur

213、e previously overlooked customer cohorts.Evidence of this can be seen in the sourcing distribution of banks across select retail products.The share of prime,below prime customers in sourcing shows an upward trend over a five-year period1.10%11%13%15%Another indicator of the shift in focus is the ris

214、ing bank credit flow to previously underserved sectors such as MSME and microfinance and the growth in Tier 2 and beyond regions,both of which have been NBFCs home ground.This signifies increased competition by banks with their non-bank counterparts.Another growing phenomenon among banks is acquirin

215、g NBFC customers who have built their credit profiles over a period,by offering competitive pricing.Thus,customer retention is a vital area of competition.CAGR%(FY1823)RuralSemi urbanUrban#of accounts9.5%9.6%8.7%Credit limits sanctioned9.7%9.8%9.4%Scheduled commercial banks growing faster in rural a

216、nd semi-urban regions21516182023Bank credit to MSME3(lakh crore)Bank credit to MFI4(crore)CAGR 11%CAGR 18%9021,3281,5441,6241,7705.1 Traditional roles in credit deliveryPersonal loans1Auto loans1Credit cards19%13%12%20%7%12%16%Sub-primePrime1.Statistics NBFC,Experian Data,accessed on 24 January 2024

217、2.RBI Database on Indian Economy,accessed on 24 January 20243.Report on Trend and Progress of Banking in India 2022-2023,RBI,accessed on 24 January 20244.NBFC,MFIN website,accessed on 24 January 2024 1Q183Q231Q183Q231Q183Q234%excluding SHGSource:Statistics,Experian DataSource:RBI Database on Indian

218、EconomySource:Report on Trend and Progress of Banking in India 2022-2023,RBISource:NBFC,MFIN websiteNBFC over the last two decades has evolved into mature lending enterprises contributing meaningfully to Indias credit aspirations.The RBI,as the regulator,envisioned a regulated environment that strik

219、es a balance between supervision and freedom for NBFCs to focus on credit growth and inclusion.This environment fostered NBFCs into being agile and dynamic enterprises by nature.NBFCs offer two distinct advantages compared to their larger counterparts,the banks.Firstly,their field-heavy operating mo

220、del which allowed them to underwrite customers with non-traditional income sources and their geographically dispersed reach across the hinterlands of India,which allowed them access to credit underpenetrated regions untouched by banks.For NBFCs,the lack of deposit acceptance capabilities meant banks

221、 had a cost of fund advantage and would thus out-bid NBFCs when it came to acquiring highly rated,high-income and easily accessible retail and wholesale customers.This resulted in NBFCs inherently catering to the residual credit demand of the country.Despite this,NBFCs today have established meaning

222、ful share across products and continue to penetrate deeper in the landscape.NBFCs core strategic advantage comes from their years of building know-how of borrower industries and behaviour,gathering regional insights and developing well-oiled distribution mechanisms iteratively over decades.Leveragin

223、g their agility,NBFCs also moved fast to adopt alternate data to better understand their customers and develop efficiencies in underwriting which has further enabled growth.2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global or

224、ganization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.27Although NBFCs share of Indias aggregate credit portfolio has grown from 17 per cent in FY19 to 21 per cent in FY231,a detailed analysis of market sh

225、are fluctuations across product segments and tickets size buckets indicates intensified competition for NBFCs in segments such as housing finance,LAP,consumer durables,auto loans and gold loans.However,there seems to be limited threat in segments such as two-wheeler loans,unsecured business loans,mi

226、crofinance,commercial vehicles and personal loans.Despite the recent growth of NBFC-HFCs,especially in the affordable segment,at an overall housing finance level HFCs and NBFCs have lost an aggregate 6 per cent market share between FY19 and FY232.The major beneficiaries of this loss have been privat

227、e banks.HFCs have lost market share across all ticket size buckets,while NBFCs have made inroads in the 520 lakh segment,doubling their market share from 0.7 per cent to 1.42 per cent.The IIFL and DHFL liquidity shocks are potential grounds for the subdued performance of HFCs since FY19.HFCs have be

228、en worst hit in Tier 13 regions,losing 4 per cent market share2,performing relatively better in Tier 4+towns,where the loss was limited to 2 per cent.The 80 per cent2.This indicates direct competition from public banks in the medium-term.Housing finance portfolio market share2In FY19 NBFCs,public an

229、d private banks participated almost equally in the total auto loans portfolio with 34 per cent,30 per cent and 33 per cent market share,respectively2.As of FY23 however,NBFCs have lost more than 10 per cent market share2,equally to both public and private banks.Significantly curtailed sourcing in FY

230、20 and FY21,specifically in the 5-10 lakh and 10 lakh ticket size buckets caused this negative market share trend.Considering regional perspectives,NBFCs struggled across all city tiers,with private banks claiming majority of the wins in Tier 1 and 2 and public banks in Tier 3 and 42.5 lakhFY20FY21F

231、Y22FY234Y CAGR%NBFCs-13%-39%36%79%7%Pub banks0%18%34%55%25%Pvt banks-1%0%35%35%16%Total-4%-7%35%52%16%Auto loan disbursement growth2 5 lakhFY20FY21FY22FY234Y CAGR%NBF-1%-50%21%14%-9%PUB-10%4%-24%2%-8%PVT-17%-7%-16%-23%-16%Total-7%-29%-4%3%-10%A.Housing finance5.2 Market share fluctuations indicate c

232、ompetitive intensity across certain products and ticket size segments1%1%1%1%1%15%16%18%19%20%41%42%42%41%42%39%38%35%35%34%2%FY191%2%FY201%2%FY211%2%FY221%NBFCsPub BankPvt Banks3%Foreign BanksFY23OthersHFCs1001001001001001%B.Auto loansDigital commerce has driven the growth of consumer durable loans

233、,attracting young borrowers through buy now pay later models.NBFCs have gained a 25 per cent market share in CD loans,but private banks have experienced rapid growth in loans under 1 lakh,resulting in a small reduction in NBFCs market share2.C.Consumer durablesA recent regulatory edge for banks perm

234、itting a 90 per cent LTV compared to 75 per cent for NBFCs has revived the interest of banks,specifically public banks in gold loans.Although market shares have not yet changed materially,banks registered 20 per cent y-o-y growth in FY23,signaling potential threat in the near term3.D.Gold loans1.RBI

235、 Database on Indian Economy,accessed on 24 January 20242.Statistics,Experian Data,accessed on 24 January 20243.Report on Trend and Progress of Banking in India 2022-2023,RBI,accessed on 24 January 2024Source:Statistics,Experian DataSource:Statistics,Experian Data 2024 KPMG Assurance and Consulting S

236、ervices LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.28Recently there has been significant interest from all stak

237、eholders including regulators,industry participants,banks,NBFCs and fintechs in the loan against property product.The governments focus on upliftment of the MSME sector is clear,with a host of recent initiatives to boost this section of the industry.Although NBFCs have fared well to forego only 3 pe

238、r cent market share on an overall LAP product level between FY19 and FY231,the evaluation of competitive intensity for NBFCs reveals contrasting results when divided between low-ticket size and high-ticket size lending segments.While NBFCs have protected their position in the smaller ticket segment,

239、private banks are aggressively expanding across all other ticket sizes posing significant threats to both NBFCs as well as public banks.Whereas HFCs disbursement growth has been negative in the INR 15 crore bucket,registering an average 17 per cent CAGR(FY1923)in the 50 lakh bucket1,private banks ar

240、e aggressively growing disbursements by almost 20-25 per cent(FY1923)across all ticket size buckets1.Ticket segmentHFC+NBFCPub Bank Pvt Bank5 CrFY1960%6%24%FY2339%4%43%-21%-2%18%Market shares changes in LAP portfolio1E.Loan against propertyThe Account Aggregator(AA)framework and OCEN standards are r

241、evolutionary initiatives by the Indian Government towards an open architecture financial ecosystem.Standardized and consent-based data sharing has the potential to significantly transform the way underwriting is done and level the playing field between various lending enterprises by bringing in info

242、rmation symmetry.It is expected that retail borrowers,specially MSMEs will be the primary beneficiaries of the AA and OCEN initiatives and in-turn LAP and Business loans are poised to benefit greatly.This poses a threat to NBFCs who have relied on years of internally generated knowledge base of the

243、on-ground situation of to have an edge in underwriting them vis-vis banks.Banks prioritising digital channelsNew private banks such as IndusInd,RBL,IDFC First have been front-runners in building fintech collaborations and digital capabilities.Moreover,even public sector banks,such as Bank of Baroda

244、which has formed a multitude of fintech partnerships and SBI which has launched the YONO app,are showing intent and openness towards digital channels for sourcing.NBFCs have largest wallet share in fintech lending,but this may change with greater technology adoption by banks.5.3 Technology bridging

245、the information divide127 318 39.0 million 40.1 million FIPs liveFIUs liveAccounts linked(as on Dec 2023)Consent requests fulfilled(as on Dec 2023)1.Statistics,Experian Data,accessed on 24 January 20242.Sahamati.org,accessed on 24 January 20243.KPMG in Indias analysis based on reports published by R

246、BI,IFC,World BankProgress of the Account Aggregator framework2Source:Statistics,Experian DataSource:Sahamati.org 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG

247、International Limited,a private English company limited by guarantee.All rights reserved.29The M&A activity over the last 10 years has predominantly revolved around the five key themes5.4 Emerging themes and the way forwardFundamental changes in the operating environment over the past 10 years prese

248、nt partnerships a viable alternative to M&A:Technology:API for data interchange has revolutionised the way lending businesses operate and has paved the way for real-time information exchange between core systems.Intermediation:Led by technology there has been a host of intermediaries for fraud verif

249、ication,KYC,reconciliation,underwriting,etc.Alternate data:Borrowers now possess a significantly larger digital presence than ever before,and this trend is continuously expanding.Credit bureaus:Popularisation and understanding of CICs amongst borrowers and accurate reporting of data by lenders has i

250、mproved significantly.Regulation:There have been proactive regulatory changes in areas such as KYC(Aadhaar,Video,etc.),outsourcing,digital lending,co-lending,etc.Governance:Governance standards of NBFCs have improved significantly.Limited arbitrage:Scale-based regulations have bridged the NBFC-bank

251、regulatory arbitrage to a large extent.Operational harmonisation:Banks have harmonised activities such as risk-based pricing,collection practices and Non-Performing Assets(NPA)recognition.Overlapping market:Enhanced information transparency has resulted in the convergence of target customer groups b

252、etween Banks and NBFCs.Partnerships will become important alternatives due to significant changes,as M&A in stress assets and public bank consolidation continues.Additionally,high valuation multiples make strategic acquisitions expensive and unrealistic.Growth in exposure to microfinance to meet pri

253、ority sector targetsAU SFBs acquisition of Fincare SFB1 was primarily driven by the objective to build a microfinance portfolio and access Southern India through Fincares presence.Kotak acquired Sonata Finance1(a microfinance enterprise)in FY23 to complement its rural and semi-urban PSL exposures in

254、 North India.IndusInd Bank acquired Bharat Financial Inclusion Limited1 to grow its microfinance portfolio and meet PSL targets.Kotak acquired BSS Microfinance1 primarily to acquire its business correspondents to supplement Kotaks existing field network.Consolidation of public banksOver the past dec

255、ade,state-directed acquisitions of public banks have occurred,including Indian Banks takeover of Allahabad Bank and Punjab National Banks acquisition of Oriental Bank of Commerce1.Further consolidation is anticipated,resulting in larger entities with specialised capabilities with the potential to di

256、srupt the credit markets.Expansion through M&AKotak acquired ING Vysya1 to establish its reach in southern India and gain access to the MSME customer franchise.Svatantras acquisition of Chaitanya,CreditAccess acquisition of Madura Microfin,Centrums Acquisition of Altura represent growing consolidati

257、on in the NBFC for scale and size1.Privately held NBFCs continue to prefer capital market exit opportunitiesNBFC have experienced IPO success across product categories such as wholesale lending,housing finance and microfinance.Public markets have shown higher appetite for the value that NBFCs bring

258、by offering better price discovery(i.e.,high valuation multiples).Going forward,more MSME/LAP and vehicle finance NBFCs may seek listing.Fintechs inorganic route to banking through stressed assetsSlice and BharatPes partnerships with North-Eastern Small Finance Bank and PMC Bank1 show that the RBI i

259、s open to fintech companies becoming involved in banking through these collaborations.1.NBFC report,VCC E,accessed on 24 January 2024 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms

260、affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.30 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG

261、International Limited,a private English company limited by guarantee.All rights reserved.3006Evolving regulatory landscape 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated

262、with KPMG International Limited,a private English company limited by guarantee.All rights reserved.316.1 Scaled based regulationNBFCs significantly contribute to Indias economic growth,particularly in under-banked areas.Over the past decade,NBFCs have grown significantly in number,size,complexity an

263、d interconnectedness within the financial sector.Many entities have grown and become systemically significant,which fueled by a lighter regulatory framework may pose potential systemic risks.To align the regulatory framework for NBFCs keeping in view their changing risk profile,the RBI issued the Sc

264、ale Based Regulation A revised regulatory framework for NBFCs(the Framework)which has been effective from 01 October 2022.With the increase in net owned funds from INR2 crore to INR10 crore1,the Framework has categorised NBFCs into four buckets based on the asset size,business activity and perceived

265、 risk.The lowest layer exhibiting the least risk i.e.based on an asset size of less than INR1,000 crore,shall be termed as NBFC-Base Layer followed by the NBFC-Middle Layer with an asset size of more than INR1,000 crore.NBFC-Upper Layer i.e.the third bucket which poses a sizeable amount of systemic

266、risk shall comprise of NBFCs that are specifically identified by the RBI as warranting enhanced regulatory requirement based on a set of parameters and scoring methodology prescribed in the Framework.The top bucket i.e.NBFC-Top Layer is ideally expected to be empty and shall be populated only if RBI

267、 is of the opinion that there is a requirement to move an NBFC from upper layer to top layer keeping in mind the potential systemic risk arising from the specific NBFC.Based on categorisation,the regulatory framework shall differ with NBFC-Base Layer being least regulated and NBFC-Upper Layer attrac

268、ting bank-like regulations.The Framework for NBFCs is expected to structurally benefit the sector from the risk management and stakeholders perspective.However,in the short-term,there could be some effects on business due to rising capital requirements,the introduction of Common Equity Tier-1 requir

269、ement of 9 per cent for NBFC-UL and the introduction of the Internal Capital Adequacy Assessment Process.Along with changes in the categorisation of NBFCs from a regulatory perspective,corresponding changes are also brought into the provisions of Income-tax Act,1961(the Act)to provide necessary reli

270、efs.6.2 Digital lending guidelinesThe expansion of digital lending has led to various concerns in the digital ecosystem,primarily relating to the unbridled engagement of LSP with banks and NBFCs.On 02 September 2022,the RBI released the Guidelines on Digital Lending to address the importance of fost

271、ering innovation and inclusivity in the lending sector while ensuring customer protection.The digital lending guidelines cover regulations for customer protection,grievance redressal and fee methods,emphasizing transparency in loan terms,LSP involvement and customer data usage.Default Loss Guarantee

272、(DLG),commonly known as FLDG,has been a popular model under digital lending.On 08 June 2023,RBI issued guidelines on Default Loss Guarantee in Digital Lending(DLG guidelines).The said DLG guideline provides for a cap on DLG of 5 per cent of the amount of the loan portfolio.The DLG guidelines also ou

273、tline the procedures for recognizing NPAs,the format in which disclosure of loan loss provisions should be provided,the treatment of DLG for regulatory capital purposes and the disclosure requirements related to DLG.The said DLG guidelines encapsulate RBIs support and recognition of the role of fint

274、ech lending and innovation in expanding formal credit to unserved and underserved segments.Laying down a uniform policy has increased certainty and clarity for banks/NBFCs and provided an impetus to digital lending.As a result,theres been a reevaluation of existing NBFCs/LSP agreements,LSP/DLA conso

275、lidations and reassessment of some fintechs going concern due to insufficient capital support.1.Press Release,Reserve Bank of India,accessed on 24 January 2024 2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of

276、 independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.321.Press Release,Reserve Bank of India,accessed on 24 January 20242.Digital Personal Data Protection Act,Ministry of Electronics and Information Technology,Governm

277、ent of India,accessed on 24 January 20246.3 Technology risk and cyber security regulationsThe Indian Financial Services industry has been subject to a raft of regulations in the domains of cyber and information security over the past few years.This has significantly increased the compliance burden o

278、n regulated entities.Some of the key regulations that NBFCs have to comply with are the Master Directions on(i)Technology Risk,Governance,Controls and Assurance practices(ii)Outsourcing of IT services(iii)Implementation of Core Financial Services Solution by NBFCs(iv)Guidelines on Digital Lending.Ba

279、nks will also need to critically evaluate the provisions of the recently issued Digital Personal Data Protection Act(DPDPA),2024.Master Directions on Technology Risk,Governance,Controls and Assurance practicesThese Master Directions will come into effect from 01 April 2023 and focus on the themes of

280、(i)IT Governance(ii)IT Infrastructure and Services Management(iii)IT information security and risk management(iv)Business Continuity and Disaster Recovery Management and(v)Information Systems Audit.NBFCs would need to review their preparedness and plan for compliance especially in the areas of cyber

281、 crisis and BCP DR plans,constitution of relevant IT and IS committees,enhancing the CISO/CIO function,performing periodic risk assessments,building an enterprise data dictionary and implementing audit and system logging capabilities.01Implementation of Core Financial Services Solution by(NBFCs)This

282、 regulation mandates that NBFCs-Middle Layer and NBFCs-Upper Layer with 10 and more Fixed point service delivery units shall be mandatorily required to implement Core Financial Services Solution(CFSS),akin to the Core Banking Solution(CBS)adopted by banks.The CFSS shall provide for seamless customer

283、 interface in digital offerings and transactions relating to products and services with anywhere/anytime facility,enable integration of NBFCs functions,provide centralised database and accounting records and be able to generate suitable MIS,both for internal purposes and regulatory reporting.Banks w

284、ould need to do a gap assessment of their existing technology infrastructure to assess compliance with the above requirements.03Digital Lending GuidelinesThe Digital Lending Guidelines issued in September 2022 regulate the data processing practices of digital lending agents including NBFCs.Some key

285、requirements include obtaining explicit consent of the customers before collecting,processing and sharing their data,providing them with a detailed notice containing information on data retention period,purpose for collection of consent,list of third parties with whom data will be shared etc.04Digit

286、al Personal Data Protection Act 2023Digital Personal Data Protection Act 2023,which received presidential assent in August 2023 is a comprehensive,sector-agnostic legislation that governs personal data processing by corporates.It will require NBFCs to obtain explicit consent from individuals before

287、or at the time of processing as well as bestow specific rights on them to exercise greater control over their personal data including the right to access,erasure,correct and designate a nominee for their personal data.It requires corporates to provide a detailed privacy notice in English or any of t

288、he constitutionally recognised languages on request.In addition,organisations will need to recognise,document and mitigate privacy risks as part of overall risk management systems.05Master Directions on Outsourcing of IT servicesThese Master Directions came into effect from 01 October 2023 and focus

289、 on measures that entities would need to take to manage the outsourcing risks specifically on third-party providers of Information Technology(IT)and IT enabled Services(ITeS).NBFCs would be required to maintain an inventory of third-party services and service providers,identify material services and

290、 perform due diligence and periodic assessments of third parties across the entire outsourcing lifecycle.The requirements for policies,procedures and the roles and responsibilities of the Board,senior management and IT function are also explicitly defined.02The regulator is continuing its efforts to

291、 reduce the differences between banks and NBFCs.More policy reforms are expected to improve governance,risk management,liquidity management and asset quality for both types of institutions.For NBFCs to grow steadily,they must also adopt higher technology and digital practices,improve supervision and

292、 reporting and implement customer protection measures.NBFCS need to stay updated on industry trends and strive to upgrade their practices,particularly in risk management and digital lending.This section explains some recent regulatory interventions.Forthcoming supervisory outlook 2024 KPMG Assurance

293、 and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.33 2024 KPMG Assurance and Consulting Servi

294、ces LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.3307Conclusion 2024 KPMG Assurance and Consulting Services LLP,a

295、n Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.34With the extensive adoption of technology and integration with the fint

296、ech ecosystem,disbursements across products have been very strong for NBFCs which is likely to continue in the coming years.Unsecured business loans with ticket size 20%NIM:5%ROA:2.5%Growth indicatorsCost of funds:8%(borrowings)-13%(debentures)Cost to Income ratio:43%Cost indicatorsGNPA:4.5%NNPA:70%

297、Asset qualityCRAR:=15%(ind avg=25.2%)Liquidity:Capital adequacyLCR=85%(100%by Dec24)-ve mismatches across 1-7d=10%;8-14d=10%;15-30d=20%NBFCs are expectedto play a crucial role in the India growth story fuelling formalised credit penetration among the underserved.Policy push,regulatory oversight and

298、digital across the value chain are expected to define the growth of this sector.1.Statista report,accessed on 24 January 20242.Financial Stability Report 2023,RBI,accessed on 24 January 20243.NBFC report,CAFRAL,accessed on 24 January 20244.Master direction on Scale Based Regulation 2022,RBI,accessed

299、 on 24 January 20245.NBFCs gearing up for growth 2022,CRISIL,accessed on 24 January 20246.NITI Aayog report 2036,Government of India,accessed on 24 January 2024579111315171921per cent(y-o-y)Source:RBI supervisory returns.20.8Credit growth0246801234567per centper centNBFCs-Financial indicators and gr

300、owthCRAR(RHS)GNPAROANIM(Annualised)2925262728Source:RBI supervisory returns.2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a private Engli

301、sh company limited by guarantee.All rights reserved.37Vinay NarkarPartner-FS Business ConsultingAbhijeet LakulePartner-FS Deal AdvisoryRohan PadhiPartner-Digital TrustKoshy ThomasPartner-FS GRCSSunil BadalaDeputy Head of TaxSaurabh KamdarAssociate Partner-ESGJoymalya BandyopadhyayDirector-FS Busines

302、s Consulting Romharsh RazdanDirector-Digital TrustJanmin ShahDirector-Digital TrustDivya PoojariDirector-Digital TrustChandan BhavnaniTechnical Director-ESGOmkar SawantPursuits Lead-FS Sector,MarketsNandini IyerAssociate Director-Financial Risk ManagementGautam BhagatAssociate Director-Financial Ris

303、k ManagementShubhangi BoseAssociate Director-FS Tech EnablementKeshav SinghManager-Financial Risk ManagementVikas SonwaneManager-FS Business Consulting Anmol Puri Manager-FS Tech EnablementPritha Dalmia Assistant Manager-Financial Risk ManagementPuja DeshpandeAssistant Manager-Digital TrustSheetabh

304、TiwariSenior Consultant-FS Business Consulting Siddharth SoniSenior Associate-Deal AdvisoryAnurag IyerAssociate Consultant-FS GRCSAdeeba HashamAnalyst-FS GRCSPriyanka SethiManagerAman KothariConsultantIshani MukherjeeConsultantRagini SinghalConsultantNeha AgarwalAssociate ConsultantPrachi SharmaBusi

305、ness AssociateAklanta WanniangBusiness AssociateMarketing ComplianceNisha FernandesBrand and DesignShveta PednekarAcknowledgementsMarketsKPMG Global Services(KGS)KPMG in India contacts:The information contained herein is of a general nature and is not intended to address the circumstances of any par

306、ticular individual or entity.Although we endeavour to provide accurate and timely information,there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.No one should act on such information without appropriate prof

307、essional advice after a thorough examination of the particular situation.The views and opinions expressed herein are those of the quoted third parties and do not necessarily represent the views and opinions of KPMG in India.KPMG Assurance and Consulting Services LLP,Lodha Excelus,Apollo Mills Compou

308、nd,NM Joshi Marg,Mahalaxmi,Mumbai-400 011.Phone:+91 22 3989 6000,Fax:+91 22 3983 6000.2024 KPMG Assurance and Consulting Services LLP,an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,a pri

309、vate English company limited by guarantee.All rights reserved.The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization.This document is for e-communication only.Sanjay DoshiPartner and Head-FS Sector Advisory E:Somdeb SenguptaPartner-Financial Risk Management E:Ankur JainPartner and Head-FS Sector Business Consulting E:Vishnu PillaiPartner-FS Sector Tech Enablement E:Kunal PandePartner and Head-Digital Risk and Cyber Management E:Suveer KhannaPartner-Forensics E:Akhilesh TutejaHead-Clients&Markets E: