FIDC's Raman Aggarwal On NBFC Sector Post Announcement Of New Delhi Declaration

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00:00 Hello and welcome. You're watching BQ Prime. And today for this special broadcast, I'm

00:05 joined by Mr. Raman Agarwal from the FIDC. Mr. Agarwal, thank you so much for speaking

00:11 to BQ Prime on such a short notice.

00:13 Thank you.

00:14 Mr. Agarwal, we're talking about the G20 declaration and it has been making news all over the weekend.

00:22 The G20 declaration is talking about the better coordination between countries to solve the

00:27 financial sector issues. But it also mentions somewhere about the non-banks. So what do

00:33 you think the kind of work that needs to be done in the NBFC space?

00:38 Thank you, first of all, for having me on the program. Yeah, we are all, you know, elated

00:44 and delighted to see how well India has hosted and organized the G20 and all credit goes

00:51 to the Indian government, led ably by our Honorable Prime Minister. And I think apart

00:57 from organizing the summit, what was more historic was the New Delhi declaration, as

01:01 you mentioned, because there was a lot of speculation that in the wake of the ongoing

01:07 geopolitical issues, there will not be a consensus. But through sheer diplomacy and authoritative

01:14 leadership, India has managed to come out with a 100% unanimity where New Delhi declaration

01:21 talks about there is absolutely no footnote. And you're right, yes, when we talk about

01:26 the New Delhi declaration, one of the key areas it touched upon is the financial sector

01:32 issues. And there, the New Delhi declaration has drawn its recommendations or points from

01:40 the third G20 finance ministers and central governors meeting, central bank governors

01:46 meeting, which was earlier held in the month of July in Gandhinagar, Gujarat. As you know,

01:52 as part of the G20 presidency, about 60 meetings were held across the country, and one of them

01:58 was with the finance ministers and central bank governors. So, in that meeting, this

02:03 issue was discussed, specifically, a lot of importance was given on the non-bank finance

02:08 intermediation. At the same time, mentioned in the Delhi declaration, if you read Para

02:14 H, which is on financial sector issues, the first point it touches upon is the NDFI. So,

02:21 what does it say is that recognizing that, you know, that is, I think, the key takeaway,

02:27 first of all, that at the level of G20, so you can imagine a global stage recognizes

02:35 the role of non-bank financial intermediation, NDFI. And that is where we have been saying

02:41 all these years that, you know, the big quantum jump in the recognition of NDFI sector in

02:48 the wake of some of the excellent work being done is now being recognized globally. So,

02:54 that's the first key takeaway for me. And this finds us the first mentioned point under

02:59 the financial sector issues of the Delhi declaration. So, what does it say that we continue to strongly

03:06 support the work of Financial Stability Board to address the vulnerability and hence the

03:13 resilience of NDFI. Now, just for clarification, we may know,

03:19 FSB is a Financial Stability Board, which is an international body that monitors and

03:26 makes recommendations on the international financial stability. So, it talks about the

03:32 various risks which may come affecting the financial stability across the world. As you

03:38 rightly said, the world is totally connected today. So, one crisis, financial crisis in

03:45 any part of the world does have an offshoot or impact on the other part. So, what it says

03:51 is that, you know, we need to enhance the resilience of the non-bank financial intimidation,

03:58 the NDFI sector. And there they said that we fully support the work being done by FSB.

04:04 So, that's the first key takeaway. If you further deep down, you know, deep dive into

04:11 this, so this Financial Stability Board had come up in a few days back, a report on how

04:19 to enhance the resilience of the NDFI across the globe. So, what is the whole message here,

04:28 if I may connect the dots is that the G20 declaration says, one, we recognize NDFI as

04:36 an important key sector. Two, we fully support the work being done by the Financial Stability

04:43 Board to enhance the resilience of the NDFI sector. So, this is the key takeaway under

04:49 the New Delhi declaration.

04:50 Right. So, I would just like your perspective on this. But do you think that the non-banks

04:57 are in a right place to tap into India's growth potential at this point?

05:02 Absolutely. I think that you're spot on. And in fact, that has been, if you see, ever since

05:09 2018, when we had the liquidity crunch post the ILOFS crisis. Yeah, although it was for

05:18 the wrong reason that suddenly an NDFI sector or NBFC sector as we call in India, came into

05:24 limelight. But ever since then, the sector has shown tremendous resilience and growth,

05:30 you know, and we saw this during the COVID era. In spite of, during the COVID era, there

05:36 was a lot of speculation that we know whether this sector may, it may cause a death knell

05:42 for the sector. But we see post COVID, and like many of the previous crisis, NBFC sector

05:48 in India has in fact come out very strong. And the government of the day is fully recognizing

05:54 this fact, is aware of this fact, the central bank, which is RBI, which is also the regulator,

06:00 also recognizes. So we see a greater recognition coming in from all levels, whether it's the

06:09 regulator or the policymaker. And that itself speaks about the potential this sector has

06:15 in playing an important role going ahead when it comes to, you know, taking India to become

06:22 the third largest economy, or become a 5 trillion economy, whatever you may say so.

06:29 Sir, since we're talking about the potential of the sector already, I would also like to get an

06:35 understanding from you that what do you have to say on the asset quality as a metric for the

06:40 NBFC sector at this point? See, at this point, we've seen as always,

06:46 the asset quality is pretty robust. You know, in fact, there is, contrary recently, you know,

06:51 we as the industry body FIDC, our office had a meeting with the governor and you know,

06:56 governor had called some of the leading NBFCs also for a discussion. And in fact, this point

07:02 was discussed that and rightly so, the regulator and the RBI governor said that while we are

07:09 witnessing a very, very robust and very strong, very growth in the rapid growth in the NBFC

07:16 sector, it was a kind of a caution that please watch out that nothing wrong happens, you know,

07:23 because often it is said that during good times, people tend to become lags and that is where

07:29 something wrong happens. So that was just a word of caution which came in, and rightly so at this

07:34 point. But the message here is that once again, RBI and everybody recognizes that yes, we are

07:41 seeing a very rapid growth in the NBFC sector. And it also reflects in a robust asset quality as of

07:48 now. All right. Mr. Agarwal, just to quickly wrap this up,

07:52 and I just want like one last question I have for you. And if you could tell me in brief that

07:57 what are your views on the current state of regulations and the business environment for NBFCs?

08:02 We all know that RBI has put in place what is called as the scale based regulatory framework,

08:12 which came into effect from 1st October 2022. And rightly so, so what they've done is, you know,

08:17 it's a layered structure, and the regulatory framework keeps becoming more and more stringent

08:23 as you go up the layer. And obviously, the upper layer is treated like banks. So I think

08:29 the regulator is doing a very good job in terms of recognizing the resilience and the need

08:35 to have different set of regulations for different size of the companies. So the small companies

08:42 which are in the base layer need not be subject to very stringent regulations. Having said that,

08:47 we as a sector feel that there is a lot more which needs to be done, especially on the liability

08:52 side when it comes to fundraising, there is a need to diversify the funding sources. Apart from that,

08:59 we see NBFC sector playing a key role, especially in the growth of MSMEs in India.

09:05 All right. Thank you so much for joining us, sir, and for sharing these insights. I think it's a

09:11 remarkable and momentous time for the country that the G20 has happened. Thank you so much for

09:16 speaking to BQ Prime, sir. Thank you. My pleasure. Thank you.

09:27 [BLANK_AUDIO]

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