The Reserve Bank of India (RBI) is closely watching developments unfolding in the NBFC sector, which is facing a liquidity crunch, and is committed to see that the sector remains robust and healthy, Governor Shaktikanta Das said on Thursday during the post monetary policy announcement press conference.
The recent liquidity crisis faced by NBFCs was triggered by mortgage lender Dewan Housing Finance Corporation Ltd. (DHFL) as it delayed interest payment to its non-convertible debenture investors, causing it to be downgraded to default grade. “[The] RBI remains committed that we have a robust, well-functioning NBFC sector. [The] RBI will not hesitate to take whatever steps are required to ensure financial stability is not adversely impacted in any manner by any development,” he said.
On Tuesday, DHFL said it had delayed repayment to its investors but said will make the payments in the next seven days to avoid default.
IL&FS saga
Post the IL&FS crisis in August last year, which faced cash crunch and had a series of defaults, cost of funds for NBFCs have significantly shot up. Mr. Das said that the RBI was monitoring major NBFCs and housing finance companies (HFCs). “RBI does not regulate housing finance companies. Nonetheless, banks have significant exposure to the HFCs. The RBI is mandated to look after the financial stability of the entire economy. “Against that background, we have been closely monitoring the activity and the performance and the developments in the NBFC sector, including the HFCs,” he added.
NBFCs have demanded the opening up of funding from banks to tide over the liquidity crisis. “We urge the RBI to open up funding to retail NBFCs through banks that will stimulate consumer spending,” said Umesh Govind Revankar, MD and CEO, Shriram Transport Finance.
Khushru Jijina, MD, Piramal Capital and Housing Finance, said the credit crunch in the NBFC sector had witnessed a corresponding decline in manufacturing and construction activities in the last two quarters of 2018-19.
“We anticipate more decisive and proactive policy measures to address the current liquidity crisis, that will enable the NBFCs to restore lending activities, especially to these critical sectors,” Mr. Jijina added.
Draft norms
In a separate move, the RBI also announced draft norms for ‘on tap’ licensing for small finance banks after these entities furthered financial inclusion. “A review of the performance of small finance banks reveals that they have achieved their priority sector targets and thus attained their mandate for furthering financial inclusion.
“Hence, there is a case for more players to be included to enhance access to banking facilities to the small borrowers and to encourage competition,” the RBI said. Ten entities have so far been granted small finance bank licences.
However, for payments banks, the RBI said ‘more time is needed’ to review the performance before considering the licensing of this category of banks to be put ‘on tap’.
