RBI Fully Aware Of The Vulnerabilities In NBFC Sector, Says Shaktikanta Das

NBFCs have been asked to report to RBI at periodic intervals where discussions are held about their current status, Das says.

Shaktikanta Das, governor of the Reserve Bank of India. (Photographer: Dhiraj Singh/Bloomberg)
Shaktikanta Das, governor of the Reserve Bank of India. (Photographer: Dhiraj Singh/Bloomberg)

Reserve Bank of India Governor Shaktikanta Das on Thursday said the regulator is fully cognizant of the situation across non-bank lenders and is closely monitoring the 50 largest companies that represent 75 percent of the sector.

The comment comes against the backdrop of continued nervousness about the health of non-bank finance companies since the collapse of Infrastructure Leasing and Financial Services (IL&FS) last year. While the RBI has not yielded to calls for an asset quality review, Governor Das said that the regulator is keeping close watch.

“We are, wherever required, making a deep dive in to their books, their balance sheet and other numbers. I can say with some amount of confidence that we have a fairly good idea of where the vulnerabilities lie, which are the NBFCs which are vulnerable and we are monitoring very intensively,” Das told reporters after announcing the Monetary Policy Committee’s decision on benchmark rates.

The RBI, however, doesn’t just stop with monitoring these vulnerabilities, he said, adding the management and promoters of these NBFCs are asked to report to the RBI at periodic intervals where discussions are held about the companies’ current status.

“We clearly tell them about our expectations and the steps they should undertake to strengthen and get over the problems,” he said.

The RBI is also closely monitoring the liquidity position of NBFCs to ensure that they have adequate cover for their liquidity requirements over the next three months. The banking regulator will not hesitate to act wherever necessary to ensure that no large or systemically important NBFC collapses.

Last month, the RBI had superseded the board of Dewan Housing Finance Corporation Ltd. and appointed an administrator to turn around the home financier under the amended Insolvency and Bankruptcy Code. The case has been admitted by the National Company Law Tribunal and the administrator is in the process of creating the committee of creditors, which will decide on the resolution plan.

Commenting on the regulator’s decision to be the one to refer DHFL for insolvency rather than the company’s creditors, Governor Das said the RBI has the most information to be able to make a credible judgement on the solvency position of a financial company.

Amid continued nervousness, a number of NBFCs have found it difficult to raise fresh funding. NBFC sanctions dropped for a second straight quarter in the July-September period.

Das said the banking regulator had taken several steps to ensure that banks continue to lend to these companies. In November, bank credit to NBFCs rose 26.5 percent year-on-year, he said. “The better performing NBFCs are able to access funds from the market at pre-IL&FS rates. The market today is differentiating between the good and the not-so-good NBFCs,” Das said.