Usha Thorat, chairperson of the Reserve Bank of India’s (RBI) panel on finance companies, on Wednesday said she did not favour allowing financial companies to raise funds through external commercial borrowing( ECBs), since lending by external agencies is actually carried out keeping the government’s comfort level in mind.
As a matter of policy, RBI has never favoured entities regulated by it to intermediate between domestic and overseas markets, Thorat said, while addressing a conference on non-banking financial companies (NBFCs).
Financial stability eventually emerged as a sovereign risk. Overseas lenders would be more comfortable in giving funds to financial sector player, she said. This facility was allowed for a short term after the global financial crisis. Infrastructure finance companies are also permitted to use the ECB window to raise resources, she said.
She added access to finance would only be in the domestic market through non-convertible debentures, certificates of deposit and bank credit. Dependence on deposits from the public by permitted NBFCs must be done away with, she said.
On whether demand would continue, considering the current liberal norms of treating accounts as NPAs, she said RBI’s 90-day norm experience with urban cooperative banks showed recoveries from such accounts were better. If action was not initiated early (in case of outstanding repayments), the chances of recovery diminished early. According to current RBI norms, NBFCs can treat an account as an NPA only if the payment is outstanding for 180 days.
