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RBI Governor Shaktikanta Das assures improved liquidity for NBFCs in days ahead

The RBI Governor says both the government and the apex bank are taking steps to ensure that the fund crunch in the NBFC sector comes to an end

twitter-logoBusinessToday.In | July 26, 2019 | Updated 13:54 IST
RBI Governor Shaktikanta Das assures improved liquidity for NBFCs in days ahead
RBI Governor Shaktikanta Das.

RBI Governor Shaktikanta Das has said that credit flow to the non-banking finance companies (NBFCs) will get better soon as the RBI now has a good understanding about the cash flow of the top 50 NBFC companies operating in India. Reaffirming RBI's stand as an effective regulator, Das said banks had been told clearly that they would get adequate liquidity to on-lend to the NBFCs. On the issue of raising of sovereign bond overseas, Das maintained both the government and the RBI were engaged in continuous consultations.

"I think banks are making their assessment of the individual NBFCs, and the lending cycle should start to gather momentum," Das told Business Standard. The RBI Governor said that both the government and the apex bank were taking steps to ensure that the fund crunch in the NBFC sector came to an end. Union Finance Minister Nirmala Sitharaman, in her Budget speech, had said, "we're playing an extremely important role in sustaining consumption demand as well as capital formation in the small and medium industrial segment. NBFCs that are fundamentally sound should continue to get funding from banks and mutual funds without being unduly risk-averse."

Also read: BT Buzz: NBFC bubble -- Bursting in phases?

After the government's Budget 2019 proposal of offering credit guarantee on first 10 per cent of the losses of top-rate and pooled assets of the NBFCs, the RBI had cleared additional liquidity of Rs 1.34-lakh crore. The additional liquidity helped the NBFCs and housing finance companies get lending from the banks. Though the RBI provided additional liquidity to the banks, its impact on the ground is yet to be seen in terms of lending to the shadow banks. "I now expect a better flow of credit to the NBFC sector," the RBI governor said. He also reiterated the RBI's stand to regulate housing finance companies, as they, along with banks and NBFCs, are "interconnected", and that the prevailing problems in the HFC sector are affecting banks and NBFCs.

On banks not passing on the repo rate cut benefit on to customers, the Governor said: "Banks are gradually recovering from stress in their balance sheets due to the overhauling of NPAs". He said that since most large banks are out of the RBI's prompt corrective action framework, and NPAs no longer being an impediment, the transmission of rate cut benefit would improve. On the RBI's forecast on India's GDP for the FY20, Das said the apex bank's teams were working on GDP numbers, and hinted that it could announce its forecast in the next MPC meeting in August.

The rising global trade tensions have also affected India to some extent. The Governor told the daily, "if trade tensions lead to global demand, they will have an impact on Indian exports and in the longer run, India will be impacted." The issue of raising sovereign bonds overseas has been criticised by several former RBI governors and economists. The RBI Governor said both the government and the RBI were holding consultations on the matter. "We will continue to engage with the government (on the issue of sovereign bonds)," he said.

On the issue of having lesser powers over the appointment of board members in public sector banks, Das said, "In regulation and supervision, we have enough powers and there is no differentiation between public and private banks." He also said that in areas such as changing the management of public sector banks, the central bank could always do it through the government.

Also read: RBI reins in NBFC sector post Budget 2019, gets powers over boards

Edited by Manoj Sharma

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