The Hindu Business Line : NBFCs hope banks will take RBI’s cue

Chennai, Nov. 1 When Business Line met Mr M.A. Alagappan, Chairman, Cholamandalam DBS Finance, Saturday morning, he came across as a man who had a load on his mind.

Chola DBS, he said, was not in a problem as the Murugappa group had arranged for sufficient liquidity, through lines of credit from banks.

Then, why the worry? Well, arranging for lines of credit is one thing, getting the moneys in hand is quite another, he said.

Mr Alagappan’s concern was not that banks could not be trusted to keep their promise. But, the Reserve Bank of India has, for several years, been signalling banks to keep NBFCs at bay. Would banks still fund Chola DBS, despite the regulator’s frown?

When this correspondent got in touch with Mr Alagappan later in the evening, after the RBI had brought in some liquidity-easing measures, his worry lines had gone and he sounded confident that banks would not hesitate to lend to the company.

This tectonic shift in the body language provides the critical insight into the business of NBFCs today.

By telling banks that they would relax their SLR requirements by 1.5 per cent of their net demand and time deposits provided the banks would use the funds released to give loans to NBFCs and mutual funds, the RBI has signalled a change in its attitude towards NBFCs.

Thanks to this measure, the banking system would have an additional Rs 60,000 crore to lend only to NBFCs and mutual funds, both of whom have been facing a severe liquidity crunch.

Now, NBFCs can heave a sigh of relief, but it is not the end of their problems.

First of all, banks must be willing to lend to them. Companies such as Chola DBS, Sundaram Finance and Shriram Transport, that have long relationship with banks, may get benefited, but a whole lot of other NBFCs may not yet feel the banks’ warmth.

The second issue is the market. Even if NBFCs do get finance support, they should find borrowers, which seems to be an issue today. NBFCs whose business depends upon commercial vehicle, construction equipment or stock markets will find the going tough.

Poor offtake

Take for example, Shriram Transport. The company has not faced any liquidity problem, but nevertheless expects a slowdown because of poor offtake of commercial vehicles. “We will stay where we are,” says its Managing Director, Mr R. Sridhar. The company has assets worth Rs 22,500 crore under its management (including those sold off).

Nevertheless, the RBI’s move has been widely welcomed by the industry. “It will help the industry much,” says Mr G.S. Sundararajan, Managing Director and CEO, Fullerton India Credit Company Ltd. Fullerton for one, sees no slowdown in its lending, which is mainly small ticket, consumer financing. Currently, the company, which is owned by Tamesek Holdings of Singapore, has assets worth $800 million.

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