DFS Flags Key Challenges for NBFCs, Urges Fair Lending Practices

The government is actively engaging with stakeholders to address the mounting operational and regulatory challenges faced by non-banking financial companies, said Department of Financial Services Secretary M Nagaraju.

He also urged the sector to uphold fair and ethical lending practices. The government is “conscious of the risks and challenges” in the sector, ranging from excessive reliance on banks for funding, recurring liquidity issues, to taxation complexities in standalone and co-lending models, Nagaraju said while speaking at the NBFC Conclave in New Delhi.

He said that the DFS has taken up these matters with relevant authorities and is committed to working on practical and sustainable solutions.

“There have been rich discussions on the challenges, opportunities and innovations within the NBFC ecosystem,” Nagaraju said, adding that the government’s consultative approach in resolving sectoral pain points.

While the government has welcomed this innovation, he stressed the importance of ensuring it is driven by principles of transparency, fairness and accountability.

He also encouraged NBFCs to explore consolidation within the sector, strengthen balance sheets, invest in capacity building, and adopt global best practices in governance and risk management.

“The digital lending guidelines issued by the RBI are a step in the right direction,” Nagaraju said, urging NBFCs and their fintech partners to embrace ethical lending practices, protect customer data, and bolster cybersecurity.

The statement comes amid growing scrutiny of digital lending practices and the operational stress some NBFCs have been facing, especially those serving underserved and informal market segments.