Banks need to be given “stronger overview” on the lending practices followed by non-bank lenders who borrow from them, a senior official from SBI has said.
Non-bank finance companies and microfinance institutions should follow the same risk underwriting and credit monitoring principles as followed by the larger banks from whom they borrow money, C S Setty, a managing director at the country’s largest lender, said.
It can be noted that banks lend to such non-bank lenders and also have onlending arrangements, wherein the NBFC or MFI will assess a borrower and utilise its distribution and collection expertise to make a loan.
“The banks should have a stronger overview on lending practices of borrowers from the non-banking lenders,” Setty said, emphasizing that the non-bank lenders should follow the same risk underwriting and credit monitoring principles as it is followed by larger banks from whom they borrow.
He added that banks need to be “mindful of aggregate risk of the incipient stress if any” because a good proportion of banks’ lending comprises loans to NBFCs and MFIs.
A banker’s job is to assess the risk, mitigate it and price it, Setty said, adding that in the last five or six years, NBFCs have taken a lot of loans. He also made it clear that bank lending to such entities should not be seen as one to the financial sector, because ultimately it reaches the real sector of the economy.
“If you take MFIs, what are the governance standards which they are following? And NBFCs, what is the assessment and the quality of standards which they are applying while underwriting. These two have an aggregate risk impact on the banking sector because we are the largest lender to both the NBFCs and the MFI sectors,” he said.
Setty also said that SBI is not aggressively looking at increasing the 65,000 business correspondent network, but is focusing on enabling them technologically to deliver more banking products.
He also added that the bank is focusing on unbanked rural areas, urban and metros for expanding the network.