Union Finance Minister Nirmala Sitharaman said lending should be based on the genuine needs and repayment capacity of customers

Finance Minister Nirmala Sitharaman on Wednesday cautioned Non Banking Financial Companies (NBFC) that financial inclusion should not be tool for financial exploitation. She also advised that interest rates should be reasonable and the recovery process must be conducted in a fair, empathetic and respectful manner.

“A sustainable business model must be the cornerstone of the sector’s growth, and at the heart of a sustainable credit landscape lies a financially aware and literate customer. However, financial inclusion cannot be used as a pretext for ‘financial exploitation’,” Sitharaman said while addressing NBFC Symposium here.

Further, she said that lending should be based on the genuine needs and repayment capacity of customers. “Loans should not be aggressively marketed or pushed onto individuals,” she said. The Minister urged interest rates should be reasonable, and all charges should be clearly disclosed in a simple and transparent manner, free from hidden costs or complicated terms. With the recent RBI measures reducing the costs of funds to the sector, she urged NBFCs to pass on the benefits of this reduction onto customers.

recovery practice

Taking note of reporting of harsh measures for recovery, the Minister said that recovery practices must be conducted in a fair, empathetic and respectful manner, in strict accordance with the RBI’s Fair Practices Code. “The push for growth should not come at the expense of customer well-being,” she said.

Though NBFCs have been called ‘shadow banks,’ Sitharaman felt that that they are no so. Their stronger regulation and oversight is the best testimony of their importance in the financial system and the broader economy. Some systemically significant NBFCs have grown in size and complexity, with governance and compliance standards comparable to banks. “This marks an important evolution, where robust NBFCs can graduate to banks, creating a continuum of institutional growth within the financial sector,” she said.

Gross Loan advances by NBFCs have grown significantly, doubling to ₹48-lakh crore as of March 2025 from ₹24-lakh crore as of March 2021. The NBFC ecosystem has over 9,000 registered entities, which range from large infrastructure lenders to niche players in microfinance and asset-backed lending. Asset quality has shown steady recovery since the pandemic, with NBFC sector’s gross NPAs having steadily declined to 3 per cent at the end of FY25 from 6.4 per cent in March 2021. During this period, Return on Assets improved to 2.4 per cent from 1.11 per cent.

According to the Minister, as the NBFC model matures, the focus on Risk Management should increase. Risk-taking must be well-planned and data-driven, and never beyond the absorption capacity of the entity concerned. Liquidity and credit risks must be rigorously assessed and managed, while robust internal controls should ensure oversight on asset-liability mismatches, nature and tenor of the funding sources, and concentration risks. A strong, future-ready financial ecosystem requires deep collaboration between NBFCs and banks.

“The synergy between the two has already delivered notable results, especially through co-lending arrangements. Going forward, such partnerships should be institutionalised and scaled,” she said Further, she asked NBFCs to aim for 100 per cent adoption of digital processes across the entire loan lifecycle. “To enable this, there is a need to develop a minimum common technology standard for all registered NBFCs,” she said.

Published on July 9, 2025