Better-performing NBFCs able to get funds at pre-IL&FS rates: RBI governor

RBI governor says sector being closely monitored; credit flow is improving

Reserve Bank Governor Shaktikanta Das on Thursday said the market had differentiated between the good and not-so-good non-banking financial companies (NBFCs) and the better-performing firms were able to access funds at pre-IL&FS rates.

Currently, “good NBFCs” are able to raise three months commercial paper (CP) at 5-6 per cent interest rate, but the not-so-good ones are raising CPs for three months tenure at 8-9 per cent. Some of them, however, are not able to raise funds at all from debt market and money market.

“In the pre-IL&FS period, the difference in rates for raising CPs for a three-month period was less than 1 per cent. It is close to 3 per cent now,” said Anil Gupta, vice-president & sector head, ICRA.

Rajiv Sabharwal, managing director and chief executive officer of Tata Capital, said: “Availability of funds for NBFCs has improved. The cost of funds is better (real interest rates have come down) and long-duration finance is available. Now, CP is being issued up to 12 months, as against three-six months earlier, and debentures are available for three-five years against 12-18 months.”

“The NBFC sector is being monitored and the credit flow is slowly reviving to the sector,” Das said in a media interaction after the monetary policy committee meet. He emphasised on the fact that given the prevailing liquidity conditions in the shadow banking sector, the RBI, wherever necessary, will not hesitate to act to ensure that any large or systemically important NBFC does not collapse.

The RBI is monitoring the top 50 NBFCs “closely and intensively”. “We are, wherever required, making deep dive into their books and other numbers. We exactly know, and I can say this with some amount of confidence, that we have a fairly good idea of where the vulnerabilities lie,” the governor said.

He said the RBI was consulting the management and promoters of troubled NBFCs at periodic intervals. “Discussions are held between the RBI and the promoters as well as the management of these NBFCs. We clearly tell them our expectations of the measures that they should undertake to get over their problems,” Das said.

Post the IL&FS fiasco in September 2018, NBFCs were not able to access funds from the market and cautious banks were not extending credit to them. However, the governor said bank credit to NBFCs till the end of November had grown by 26.5 per cent.

According to the RBI data, banks gave about Rs 72,136 crore to NBFCs between April and October 2019, as against Rs 66,222 crore in the same period last year. The banks are also supporting finance companies by buying high retail loan pools (home, consumer loan) and SME.

On the other hand, the NBFCs with large wholesale portfolio are struggling to get extra funds. The lenders have stepped up scrutiny of loan profile of finance firms and are charging higher interest rate and higher collateral cover for exposures.

“Incremental bank credit has been flowing to most of the NBFCs; one of the major reasons for this is the special window that the RBI has given to the banks wherein they can lend to the NBFCs for on-lending to priority sectors. Such loans will be eligible to satisfy the priority sector lending targets of banks,” ICRA’s Gupta said.

The RBI in August allowed banks’ lending to NBFCs for on-lending to agriculture, micro and small enterprises, and housing to be classified as priority sector lending, up to specified limits.

The RBI also raised any bank’s exposure limit to a single NBFC from the existing 15 per cent to 20 per cent of tier-1 capital. The idea behind these measures was to ease liquidity pressure on the shadow banking sector.

Banks’ lending to NBFCs for on-lending to agriculture up to Rs 10 lakh a borrower will be treated as priority sector lending. So are for loans up to Rs 20 lakh for micro and small enterprises and housing.

The governor said the RBI was closely monitoring liquidity situation of NBFCs to ensure they meet repayment obligations. The RBI recently introduced a framework for NBFCs, saying the firms have to maintain a buffer of high quality liquid assets to meet short-term obligations so that they can survive any acute liquidity crisis.

On Dewan Housing Finance (DHFL), the National Company Law Tribunal (NCLT) has admitted the case and a committee of creditors is being formed. The RBI will intervene as and when it is required. DHFL became the first financial services company to be referred to NCLT after the government notified insolvency rules for financial services providers on November 15.