Money & Banking

Lenders need to take hair-cut in the NBFC resolution process: RBI Governor

Our Bureau Mumbai | Updated on September 19, 2019 Published on September 19, 2019

Shaktikanta Das, Governor, Reserve Bank of India

Lenders will need to take a large hair-cut in the resolution of non-banking finance companies (NBFCs) where there are major governance issues, according to Reserve Bank of India Governor Shaktikanta Das.

“It cannot be a situation that there is an element of business failure; there is also an element of failure due to administrative or governance lapses. So, it is a very balanced call which banks will have to take.

“But essentially the market mechanism (for resolution of stressed NBFCs) would include the primary proactive role to be played by the promoters themselves, by the lenders, and by the other stakeholders,” said the Governor at Bloomberg’s India Economic Forum 2019.

The RBI is monitoring the top 50 NBFCs, including housing finance companies. So, as and when a situation arises in any one of them, the central bank will use the additional powers recently given to it.

“But then I think the first preference would be to find market-mechanism to resolve the problem of NBFCs. This would mean that the existing promoters go for stake sale, they bring in new sponsors or they bring new money into their set up.

“So, basically there has to be inflow of resources either by stake sale or by bringing in the new promoter or going for the securitisation of assets, which many of them are doing. So, the resolution process will have to be market-based,” emphasised Das.

Bank mergers

The Governor underscored that the transition process during the merger of public sector banks (PSBs) would have to be non-disruptive to ensure that the regular activity, whether it is a flow of credit or recovery of loans and other activities, of all the banks involved in the merger. They must continue without any disruptions.

“And the banks are constituting internal committees to ensure that this process is done in a non-disruptive manner…..and the RBI will take all measures which are necessary to ensure that this whole process of transition takes place in a non-disruptive manner,” Das said.

Published on September 19, 2019
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