RBI Governor Shaktikanta Das rules out plan to conduct asset quality review of NBFCs

RBI Governor Shaktikanta Das ruled out ordering an asset quality review (AQR) of non-banking finance companies (NBFCs) that are facing a credit squeeze and mismatch between assets and liabilities.

"No at the moment there is no such proposal to have an asset quality review," Das said on the sidelines of the national banking conference being organised by the industry lobby FICCI on Monday. He added that the Reserve Bank of India (RBI) had done asset quality review for banks in late-2016 and early-2017, under which it identified 40 largest stressed accounts and asked banks to refer them for bankruptcy resolution.

"Let me also add that 50 odd NBFCs and housing finance companies (HFCs) are being closely monitored. Our monitoring and supervision includes all aspects of the functioning of NBFCs including their capital adequacy, stability, their cash inflow and outflow," Das told reporters.

The NBFC sector is facing serious financial pressure over the past few quarters after the dramatic default by the Mumbai-based Infrastructure Leasing & Financial Services (IL&FS). The first signs of this crisis were noticed in September last year when the three-decade old lending giant ran out of money.

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The funds crunch caused by IL&FS has led to crisis in the NBFC sector that was reflected in the performance of financial institutions, coupled with their housing finance peers, which collectively control a quarter of the credit market.

The RBI governor said that the central bank is keeping a close eye on the interconnectedness of banks and NBFCs and reiterated that the monetary authority will not let any of the top 50-odd NBFCs to fail.

"It is our endeavour to ensure that no large NBFC collapses," said Das adding that the objective of the RBI is to harmonise the liquidity requirements for banks and non-banking finance companies.

"It is our endeavour to have an optimal level of regulation and supervision so that NBFCs are financially resilient and robust. We will not hesitate to take whatever steps are required to maintain financial stability in the short, medium and the long-term," said Shaktikanta Das.

Also Read: RBI Governor Shaktikanta Das flags off 'signs of fragility' among 50 top NBFCs

He also recalled that in May 2019, RBI had asked NBFCs with a size of over Rs 5,000 crore to appoint functionally independent chief risk officers with clearly specified role and responsibilities in a bid to bring in professional risk management system.

Das also said that bringing HFCs under the regulatory ambit of the Reserve Bank is a significant move, given their asset-liability profiles.

Edited by Chitranjan Kumar