Banks acquire about 80 percent of these assets through a limited number of NBFCs, which could create associated risks and amplify stress. | Photo credit: FRANCIS MASCARENHAS
The half-yearly report, which includes contributions from all financial sector regulators, notes that the interlinkages between banks and NBFC have evolved beyond the traditional lending and borrowing channel in recent years.
As NBFCs increasingly sell or securitize their retail and MSME loan portfolios, banks are not only extending credit to NBFCs but also acquiring NBFC-originated assets through loan transfers and securitization, including direct transfer, pass-through certificates and co-lending arrangements, it added.
“Banks are increasingly acquiring these assets to scale their retail portfolios, achieve higher returns and meet priority sector objectives. While the credit performance of pools acquired by PSBs (public sector banks) has been weaker than that of their own banks, with direct allocation and pooled lending showing higher credit losses, PVBs (private sector banks) have acquired pools that have outperformed,” the report said.
Moreover, banks acquire about 80 percent of these assets through a limited number of NBFCs, which could create associated risks and amplify stress.
Published on December 31, 2025
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