The Hindu Business Line : Strapped for cash, NBFCs ask Govt for more

Their demands: Ask banks to roll over the sanctioned loan limits, keep interest rates reasonable, make SIDBI and Nabard funding agencies and make it easier for us to sell our loans.

Priya Nair

Mumbai, Nov. 10 Non-banking finance companies are facing severe shortage of funds despite the Reserve Bank of India providing a special window to banks to help NBFCs. The situation is so severe that several NBFC are reportedly not sanctioning fresh loans. NBFCs have asked for more measures such as rolling over the sanctioned limits, reasonable interest rates and others.

For banks, which are facing a liquidity shortage themselves, lending to an NBFC, which may be a competitor, does not make sense. A senior official with a leading public sector bank said that the bank has practically stopped extending credit to NBFCs in the last month. “Why should I lend to an NBFC that operates in the same space as I do, such as home loans? If the NDFC is focusing on a different segment, such as auto loans, I may still consider giving credit,” he said.

The issue of providing liquidity to NBFCs was also taken up at a meeting of the High Level Coordination Committee on Financial Markets which met recently.

RBI measures

Last month, the RBI allowed non-deposit taking NBFCs to issue perpetual debt instruments (PDI) to raise funds, in order to meet their fund requirements and maintain capital adequacy requirements. The RBI also allowed, as a temporary measure, to permit NBFCs to raise short- term foreign currency borrowings, under the approval route. According to an official from an NBFC, asset financing companies, which are into consumer durables financing, auto financing or office equipment financing, are not facing liquidity problems. Only those NBFCs which are lending to the stock market or real estate are in trouble.

“There was some temporary liquidity problem, as some banks had sanctioned limits, but not disbursed the amount. But with the steps taken by RBI, these will be eased,” he said.

Representation to Govt

The official also said that some NBFCs have made a representation to the RBI and Ministry of Finance with some more demands. Some of these demands include asking banks to roll over the sanctioned loan limits, keep interest rates reasonable, make SIDBI and Nabard funding agencies for NBFCs, in addition to banks and improve the securitisation guidelines which would make it easier for NBFCs to sell their loans.

An analyst with a stock broking firm, who tracks NBFCs said that some non-deposit taking NBFCs are facing a problem on the disbursement side.

“Sourcing funds is a problem in cases where loans have been sanctioned and NBFCs were under pressure to borrow at relatively high rates in the short term market. But the situation is easing, with a couple of them now planning to tap the bond market,” the analyst said.

The analyst also said that most NBFCs have cut down on their lending to retail segment and are now focusing on the SME segment, which is low risk with regard to recovery as there is an assured cash flow.

Crisil Report

A report by Crisil, released today, said that there has been a sharp decline in the disbursement levels of NBFCs over the past two months, as they have focused on repaying their maturing short-term obligations to mutual funds. “The decline in disbursements was as high as 70 per cent in one case, with the average at around 50 per cent for CRISIL-rated NBFCs,” Crisil said.

The report said that NBFCs’ balance sheets have a significant asset-liability mismatch; more than 50 per cent of NBFCs’ borrowings have maturities of less than one year, while most of the assets have tenures of about three years. Further, the dependence on mutual funds for short-term funding has been high: Crisil-rated NBFCs’ estimated borrowings from mutual funds have increased to more than 45 per cent of total borrowing as of September 30, 2008, from 30 per cent as on March 31, 2006.

Increasingly facing redemption pressures, mutual funds are no longer lending to the NBFC sector, and are withdrawing their existing exposures as these mature.