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RBI to monitor NBFCs to avoid future crisis

The Reserve Bank of India (RBI) would closely monitor the health of non-banking financial companies (NBFCs) and it would not hesitate to take corrective measures, if needed, to address issues in the shadow banking sector, said Shaktikanta Das, governor.

“We will not hesitate to take any required steps to maintain financial stability in the short-, medium- and long-term,” said Das on Saturday at a convocation ceremony in Pune. The comment comes at a time when there are fears that the country may be facing a major crisis in its shadow banking sector after shares of mortgage lender Dewan Housing Finance Corp Ltd (DHFL) plunged this week. The free-fall occurred after two credit-rating firms cut their view of DHFL debt to “default” levels.

The looming trouble at DHFL comes nine months after a series of downgrades and defaults at another major NBFC, Infrastructure Leasing and Financial Services (IL&FS), shook stock markets and stoked concerns of a malaise in the sector.

“The RBI will continue to monitor the activity and performance of this sector with a focus on major entities and their inter-linkages with other sectors,” he said, in a speech that was published on the RBI’s website late on Saturday. The regulator will soon issue final guidelines for liquidity risk management and will put in place a comprehensive information technology framework to strengthen surveillance of NBFCs, the governor said.

Given the importance of NBFCs for the Indian economy, the governor stressed the need for a higher level of supervision of such companies to ensure solid credit growth and asset liability management. Das said as part of initiatives to enhance supervision of NBFCs, the central bank is putting in place a system to ensure regular interaction with all stakeholders in the shadow banking value chain such as auditors, credit-rating agencies and banks.

The central bank on Friday issued new guidelines around the resolution of stressed assets after the Supreme Court in April struck down earlier guidelines saying that the RBI had acted beyond its powers. The new rules “will sustain the improvements in credit culture” and help in making India’s financial system strong and resilient, Das said on Saturday.

Das also urged Indian public sector banks (PSBs) to not depend solely on government capital infusions to solidify their balance sheets. “Depending upon individual situations, PSBs should access the capital market for mobilisation of capital,” he said. Reuters

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