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RBI monitoring NBFCs to prevent systemic shocks; better companies getting pre-IL&FS rates

Central bank’s watching the top 50 NBFCs much more closely and is making deep dive into their books, their balance sheets and other numbers wherever necessary, says Governor Shaktikanta Das. He said that RBI has a fairly good idea of where the vulnerabilities lie. It is holding periodic discussions with the management and promoters of NBFCs.

ET Bureau|
Dec 06, 2019, 07.09 AM IST
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MUMBAI: NBFC funding rates are market-driven, with the best among them raising the necessary cash at competitive rates, while Mint Road continues to monitor the non-bank lending industry to prevent systemic shocks.

After the IL&FS defaults, the Reserve Bank of India (RBI) has taken several steps to ease credit flow to the NBFC sector, with the market differentiating among the lastmile lenders.

“The better-performing NBFCs are able to access funds from the market at pre-IL&FS rates,” said Reserve Bank of India (RBI) Governor Shaktikanta Das. “The market today is differentiating between the good and the not-so-good NBFCs.”

The cost of borrowing for good NBFCs is 50-60 basis points lower than the not so good, according to Umesh Revankar, MD, Shriram Transport Finance.

“Banks are lending but money supply from mutual funds is restricted,” said Revankar.

Bank lending to NBFCs rose 26.5% in November. There is pressure on mutual funds to reduce exposure to NBFCs. Before the IL&FS crisis in September last year, banks charged nearly 40 bps as the spread on AAA-rated NBFC paper. This rose to more than 1.5 percentage points and has remained at that level despite the regulatory and policy measures.

NBFCs have been reporting lower credit pick-up for the past one year. In the September quarter, loan sanctions from NBFCs fell 34%. In the last one year, NBFCs have relied on securitisation, redemption of commercial papers, and borrowing from newer sources to support liquidity.

RBI is monitoring top 50 NBFCs much more closely. These 50 NBFCs represent 75% of the sector.

RBI Monitoring NBFCs to Prevent Systemic Shocks
“RBI, wherever necessary, is making a deep dive into their books, their balance sheet and other numbers,” said Das.

He said that RBI has a fairly good idea of where the vulnerabilities lie. It is holding periodic discussions with the management and promoters of NBFCs.

The market today is differentiating between the good and the not so good NBFCs. There are 276 deposit-taking NBFCs with asset size of more than Rs 500 crore that face greater monitoring, and together they account for 85% of the sector’s assets.

RBI has relaxed the minimum holding period for which the asset needs to stay on the book before it is eligible for securitisation. RBI has infused liquidity in the system by conducting Open Market Operations, enhanced the single borrower limit for exposure of banks to NBFCs, and reduced the minimum average maturity requirement for ECBs in the infrastructure space to three years from five years.

RBI has allowed bank lending to registered NBFCs for on-lending to agriculture. Partial credit guarantee scheme is yet to pick up where approvals are high, but disbursements are slow.

On referring Dewan Housing Finance Limited to NCLT under the Insolvency and Bankruptcy Code, the governor said it is pragmatic and that the central bank is the best placed to refer an entity to NCLT.

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