Former State Bank of India (SBI) chairman Rajnish Kumar has a word of caution for non-banking financial companies (NBFCs). According to him, NBFCs need to diversify risks across sectors and geographies as well as maintain capital adequacy norms and introduce core banking solutions going ahead. 

Pointing out that the risk-taking abilities of NBFCs are higher than banks, Kumar said that the regulatory stance will become tougher with the regulation arbitrage between lenders and non-banking entities ceasing to exist.

"Regarding asset quality review (AQR) of lenders, as pointed out by former RBI governor Raghuram Rajan, the NPA (non-performing asset) problem started with the NBFCs. The whole issue boils down to risk management and governance.

"There is a need for NBFCs to take a diversified approach across sectors and geographies and also be mindful about the risk matrix," Kumar said at an event organised by micro-finance institution VFS Capital.

Kumar said the NBFCs will have to maintain capital adequacy norms, introduce core banking solutions and make adequate disclosures by 2025, news agency PTI reported.

Nearly 23% of lending in the financial sector happens through the NBFCs, he said.

Regarding NPA in the banking sector, the former SBI chief said lenders cannot escape their share of the blame, adding that "faulty" government policies in "power, coal, telecom and road sectors" are also responsible for bad loans.

"NPA crisis is a cycle, and it keeps emerging," he said.