Parry Singh is an accomplished serial entrepreneur who has founded, led, and built more than nine businesses. He is a well-known figure in the banking world. Mr. Singh has invested more than $1.3 billion in over 50 acquisitions. Deals cover more than 50 million square feet of commercial, residential, industrial, and educational space countrywide. Presently, Singh oversees the Senior Debt activity of Red Fort Capital NBFC.

In conversation with charulatha, Correspondent, Silicon- india Magazine. Parry shares his views about the impact of regulatory changes on credit risk management practices in middle and base layer NBFCs and how do we see the integration of environmental, social, and governance (ESG) factors influencing credit risk management in NBFCs

1. What do you see as the primary challenges that middle and base layer NBFCs face in credit risk management today?
Middle and base layer Non-Banking Financial Companies (NBFCs) encounter several challenges in credit risk management. These challenges include limited access to data and analytics, hindering their ability to thoroughly assess credit risk. Additionally, reliance on manual credit assessment processes, lack of in-house expertise, and the constantly evolving regulatory landscape pose significant hurdles. The increasing regulatory requirements demand a robust credit risk management framework, which may strain the resources of middle and base layer NBFCs.

2. Can you discuss the impact of regulatory changes on credit risk management practices in middle and base layer NBFCs?
The impact of regulatory changes on credit risk management practices in these NBFCs has been substantial. Stringent capital requirements and prudential norms have compelled them to adopt more sophisticated approaches, enhancing their resilience to credit losses. New disclosure requirements have increased transparency and accountability, while stricter governance norms have strengthened internal risk management frameworks. As a result, middle and base layer NBFCs are now implementing more advanced credit risk management practices to comply with these regulatory changes.

The impact of regulatory changes on credit risk management practices in these NBFCs has been substantial

3. How can NBFCs strike a balance between using advanced technologies for credit risk management and ensuring customer data privacy and security?
To strike a balance between utilizing advanced technologies for credit risk management and ensuring customer data privacy and security, NBFCs can implement robust data governance frameworks. Clear policies on data collection, storage, and usage, along with data anonymization techniques, can protect customer privacy while still allowing effective credit risk management. Collaborating with reputable technology vendors with a strong focus on data security is also crucial for maintaining this delicate balance.

"Ensuring a fair and unbiased credit risk assessment is vital for NBFCs, especially in light of concerns related to algorithmic bias and fairness"

4. How do you see the integration of environmental, social, and governance (ESG) factors influencing credit risk management in NBFCs?
The integration of environmental, social, and governance (ESG) factors into credit risk management is gaining prominence in NBFCs. Consideration of ESG factors in lending decisions is driven by their potential impact on a borrower's credit worthiness, such as companies with poor environmental records being more prone to default. Increasing investor demands for ESG consideration further emphasize its significance in shaping credit risk management strategies for NBFCs.

5. How can NBFCs ensure a fair and unbiased credit risk assessment, particularly considering issues related to algorithmic bias and fairness?
Ensuring a fair and unbiased credit risk assessment is vital for NBFCs, especially in light of concerns related to algorithmic bias and fairness. Implementing transparent and explainable AI models allows for a clear understanding of decision-making processes. Validating AI models against historical data and regularly monitoring for bias ensures that the credit risk assessment remains impartial. Taking corrective actions, when necessary, helps NBFCs maintain fairness and integrity in their credit risk management practices.