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More than 4/5th of NBFCs sufficiently liquid: Regulator


Mumbai: The Reserve Bank of India’s (RBI) monitoring mechanism suggests that more than four-fifths of the non-bank lenders by assets are sufficiently liquid to withstand the current squeeze and that concerns over the payment obligations during the moratorium quarter are overblown, said people familiar with the matter.

About 100 top NBFCs, which account for almost 80% of the total assets of the shadow banking system, are comfortably positioned to meet their payment obligations, and qualify to get funding from banks if they face stress, said those people who did not want to be identified.

“Some NBFCs are facing issues and no one is saying that the sector doesn’t face problems,” said one of the people cited above. “But many of them are okay. Some of them said that were anyway troubled even before the Covid-19 problem surfaced are the ones that may be facing difficulties.”

RBI did not respond to queries on the subject.

The NBFC industry has been demanding that RBI specifically direct banks to extend the moratorium it permitted on March 27 to them after the regulator left doing so to the discretion of individual banks. State Bank of India has kept NBFCs out of the moratorium eligibility, causing many lenders to do the same.

The NBFC business model is that they borrow from banks and mutual funds by selling bonds which they on-lend. Once the moratorium was announced for all borrowers, NBFCs gave relief to most of their clients that are either individuals or Small and Medium Enterprises (SMEs). But banks have not been uniform in doing so.

Furthermore, concerns that many of the NBFCs are staring at a default if they are not granted moratorium, with an estimated ₹1.75 lakh crore coming up for repayment by June, may well be unfounded as the data are way off the mark.

“The numbers floating around are far too high,” said the person. “It could at best be about ₹65,000-70,000 crore, and that is quite manageable.”

The NBFC industry has been demanding a liquidity window and a special package to deal with the credit squeeze that first began after IL&FS defaulted in September 2018. But the central bank and the government have been averse to directly fund them.

Instead, banks have been granted funds to on-lend to NBFCs and coaxed to buy assets from the shadow banks to ease their liquidity positions.

The central bank has also facilitated ₹1 lakh crore of Targeted Long-Term Repo Operations (TLTRO). This mandates that half the funds raised from it should be used to buy bonds issued in the primary market.


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