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RBI rules out asset quality review of NBFCs for now

A liquidity squeeze that began with repayment defaults by IL&FS began a downward cycle in the economy

, ET Bureau|
Updated: Aug 19, 2019, 02.16 PM IST
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Agencies
Shaktikanta-Das
Das explained that bringing HFCs under the regulatory ambit of the Reserve Bank is a significant move, given their asset-liability profiles.
RBI Governor Shaktikanta Das today said that there was no proposal to conduct an asset quality review (AQR) of non-bank finance companies that are facing a credit squeeze since the collapse of infrastructure financier IL&FS in August last year.

“No at the moment there is no such proposal to have an asset quality review,” Das said at the side-lines of the annual banking conclave organised by industry body FICCI. “Let me also add that 50 odd NBFC’s and HFC’s are being closely monitored. Our monitoring and supervision includes all aspects of the functioning of NBFC’s including their capital adequacy, stability, their cash inflow and outflow.”

A liquidity squeeze that began with repayment defaults by IL&FS began a downward cycle in the economy. Since then repayment worries have gripped big companies like Dewan Housing, Zee Group and Anil-Ambani led Reliance Group.

Bank credit to NBFCs fell by over Rs 6000 crore between March to June once again highlighting the risk aversion towards the sector. Credit disbursals by non-banking finance companies plunged by a third in the year to March raising worries over solvency issue gripping other NBFCs after the implosion of IL&FS in September last year.

Governor Das also said that it was the right time to formalise linking of fresh loans with external benchmarks like the repo rate.

“I think the time has now come to formalise this linking of new loans to external benchmarks like the repo rate. We are monitoring this and will be initiating necessary steps,” he said. “It is a positive trend that the banks have responded and are now linking their lending rates, especially the new loans, to repo rates and other external benchmarks.

The country’s largest lender State Bank of India took the lead and introduced repo-linked lending rate for home loans from July only for new customers who are getting the direct benefit of lower policy rates.

Das once again appealed to banks for a faster transmission of policy rates to push-up credit in the Indian economy.

“Today, the economy requires a certain amount of push not just from the monetary policy but also from its transmission, our expectation is that they (banks) should move faster,” Das said.

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