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MUMBAI: The lurking fear that non-banking finance companies (NBFCs) and housing finance firms could run into trouble continues to linger, despite shadow banks averting a default in November.
On Thursday, capital markets regulator Sebi met the top four credit ratings agencies to discuss their assessment of liquidity of NBFCs that have borrowed fiercely in the past few years, the possible repercussions if these companies are unable to roll over borrowings and backup available under such circumstances.
“Sebi officials also asked whether borrowing NBFCs are cooperating in sharing information.
The regulator asked how agencies were evaluating the liquidity condition,” a person familiar with the matter told ET.
Last week, Sebi held a similar meeting with mutual funds (MFs), which have been bankrolling NBFCs till the ILFS fiasco sparked panic in the money markets.
“The regulator is trying to get a sense of the problem, the liquidity situation and the weak links,” said another person.
“More than 80,000 crore of commercial paper was rolled over this month and this has brought some respite.
But a lot of it is short-term money, which would come up for redemption some months down the line.
The stress could resurface in February or March, if the situation does not improve.
Neither the government nor the regulator wants defaults and chaos, particularly in the run-up to the elections.”
‘An Influential Lobby’There are about 11,000 NBFCs in India, of which close to 215 are ‘systemically important,’ while the number of housing finance companies is more than 80.
Sebi’s meetings with MFs and ratings agencies follow some of India’s top corporates — large investors in MFs — telling fund houses that they would not put money in liquid schemes that hold ‘risky’ NBFC papers.
Significantly, the concern over NBFCs is not uniform across regulatory circles.
“There are sections within regulators and even the government who believe the NBFC problem is overblown and concentrated in a few pockets,” said a senior banker.
“But it’s an influential lobby Large NBFCs have funded real estate companies and promoters who pledged shares to raise money.
It’s a vocal group whose members have tried to give the impression that problems faced by their respective companies could turn into a systemic issue,” the banker added.
With the Reserve Bank of India board not exploring the possibility of a special liquidity arrangement for NBFCs at the November 19 meeting, it was perceived that RBI wants NBFCs to slow down, even shrink.
Total outstanding bank loans to NBFCs grew 43 per cent between September 2017 and September 2018, as against 5 per cent between September 2016 and September 2017.
“It was an unsustainable growth.
Some banks lent to NBFCs which, in turn, lent to real estate companies,” said another banker.
Post the ILFS collapse, RBI has allowed banks more headroom for lending to NBFCs.
However, most banks, particularly private and foreign lenders, prefer buying loan portfolios by cherry-picking NBFC assets, rather than directly lending to finance companies.
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