Singed by the drastic ratings downgrades, non-banking finance companies (NBFCs), under the aegis of the Finance Industry Development Council (FIDC), are planning to approach the regulators to rein in credit rating agencies so that all of them are not tarred with the same brush.
While there may be a problem with a few infrastructure and housing finance companies, the Council, which represents the interests of various asset and loan finance companies, insists that its constituents have no problems.
FIDC Director General Mahesh Thakkar said where the members of his Council are concerned, there is no asset liability mismatch or short-term borrowing and unsecured loans.
“We are talking to the RBI, SEBI, Indian Banks’ Association and bankers. Due to high interest rates, the growth of the sector has been affected,” he said, adding that the FIDC will submit a formal representation to the RBI soon.
Other NBFCs also said credit rating agencies have become overly cautious after being pulled up in the wake of defaults by IL&FS.
Another industry watcher pointed out that many NBFCs are still doing good work and have stable balance sheets. “There are some NBFCs in the housing finance sector that are facing problems but there are many others that are still seeing no stress and complementing the banks in providing last-mile financial services,” he noted.
In the last few weeks, more rating downgrades have taken place for NBFCs. CARE Ratings downgraded long-term bank facilities worth ₹12,700 crore of Reliance Commercial Finance from CARE BBB+ to Care D, while ICRA cut Reliance Home Finance’s commercial paper programme to A4 from A2.
CARE put PNB Housing Finance (except for its Commercial Paper) on “Credit Watch with Developing Implications”. An executive with a rating agency, however, said: “Rating agencies reflect what happens in the market place. Ratings are outcomes. Even if there is a one-day default, it has to be called unlike a bank which can wait till 90 days.” Regulators also expect them to react immediately, he noted, adding: “Rating agencies are only doing their job. Unfortunately, the financial reality of liquidity and risk aversion is causing this whole problem in the market.”
Asset liability mismatches
In their annual outlooks, rating agencies have been warning of slower growth in the sector due to asset liability mismatches.
In its ratings round-up for FY19, ICRA had said the aggregate volume of debt it downgraded last fiscal stood at ₹3.2 lakh crore, 10 per cent higher than the preceding fiscal. “The financial sector contributed to nearly half of the total debt downgraded in 2018-19,” it had noted.
Crisil had similarly noted in its ratings round-up for H2 FY19: “The liquidity squeeze in H2 following default by a large non-bank (not rated by Crisil) has hampered the near-term outlook for select non-banks, even as most others have already reoriented their resource profiles by reducing the reliance on short-term borrowings and focussing on asset-liability maturity management.”