RBI Officials: NBFCs Play a Key Role in Monetary Policy

Imagine the government sets interest rates to help the economy.

Banks are the main way this trickles down, but NBFCs (companies that lend money but aren't banks) also play a part.

When the government changes the rate, NBFCs feel it through their borrowing costs, affecting how much they lend.

This happens more slowly than with banks.

NBFCs get money from banks and markets, not directly from the government's system.

Because they lend to riskier borrowers, their rates are often higher.

This means that it may be more costly to borrow from them as their borrowing costs increase.

New rules are helping NBFCs manage risk, and they're also working to use new technologies like AI.