The on-going crisis in the non-banking financial companies (NBFC) sector has brought it under greater market discipline, even as the better performing companies continued to raise funds, while those with an asset liability mismatch and asset quality concerns faced higher borrowing costs, the Reserve Bank of India said in its half-yearly Financial Stability Report.
NBFCs are facing a crisis of confidence post the IL&FS debt default in September last year, with a sharp increase in their borrowing costs.
As on March 31, there were 9,659 NBFCs registered with the RBI, of which 88 can accept public deposits.
“Despite the dip in confidence, better-performing NBFCs with strong fundamentals were able to manage their liquidity even though their funding costs moved with market sentiments and risk perceptions,” the report said.
While bank borrowings, debentures and commercial papers are the major sources of funding for the NBFCs, borrowings from banks have shown an increasing trend as their (banks) share in total borrowings has increased from 23.6% in March 2018 to 29.2% in March 2019 and NBFCs’ dependence on debentures declined.
“This indicates that banks are compensating for the reduced market access for NBFCs in the wake of stress in the sector,” the RBI said. Commercial paper issuance by NBFCs sharply declined post the IL&FS default.
Gross non-performing assets (NPA) of the NBFC sector as a percentage of total advances increased from 5.8% in 2017-18 to 6.6% in 2018-19, though the net NPA ratio declined marginally.
Their capital adequacy ratio (CAR) also moderated to 19.3% as on March 2019 as compared to 22.8% a year ago. The stress test revealed that their CAR may decline further.
