While a few NBFCs exhibited robust growth, most disruptive and conservative NBFCs weren't left unscathed by the current downtime. And though the government has created reforms and policies to get NBFCs back on track, the road ahead is neither short nor smooth, making it essential to strengthen their risk management frameworks. Risk management impacts NBFCs' potential to attract raise funds from primary markets in the short-run and enlist on the stock exchange further down the line. Financial institutions can no longer afford to sit back and wait for another disaster to strike but must proactively identify and mitigate internal and external risks. An ASSOCHAM report released right after the liquidity crisis of 2018 recognised the critical risks faced by NBFCs and the risk management techniques to manage liquidity and avoid insolvency.
In the ordinary course, NBFCs are open to credit and market risks because of the asset-liability transformation. With liberalisation, Indian financial markets have grown by integrating domestic and external markets over the last few years. With MNCs' entry into the credit needs of not only the corporates but also the retail segments, the risks associated with NBFCs' operations have become complex and large, requiring strategic management. NBFCs are now operating in a relatively deregulated environment.
NBFCs are now operating in a relatively deregulated environment. They are required to determine their interest rates on deposits, subject to the ceiling of the maximum speed of interest on deposits. They can offer warranties prescribed by the Bank; and advances on a dynamic basis. The interest rates on investments of NBFCs in government and other securities are also market-related. Intense competition for business involving assets and liabilities has put pressure on the management of NBFCs to maintain a good balance among spreads, profitability and long-term viability. Imprudent liquidity management can put NBFCs' earnings and reputation at significant risk. These pressures call for structured and comprehensive measures, not ad hoc action. The management of NBFCs has to base their business decisions on a dynamic and integrated risk management system and process driven by corporate strategy. NBFCs are open to several significant risks in their business - credit risk, interest rate risk, equity/commodity price risk, liquidity risk and operational risk. It is, therefore, important that NBFCs introduce effective risk management systems that address the issues relating to interest rate and liquidity risks.
By acting as an extension of your risk management team, we assist in protecting assets in each aspect. The initial focus of our firm would be to enforce the risk management discipline, i.e., managing the business after assessing the risks involved. The objective of sound risk management systems should be that these systems will evolve into a strategic tools for NBFC management. Our research analysts help you in
