Market unimpressed in wake of NBFC crisis

Kolkata: The Reserve Bank of India (RBI) will be closely monitoring the developments in the crisis-hit non-banking finance companies (NBFCs) and housing finance companies (HFCs), said the RBI Governor on Thursday. Interestingly, nearly nine months ago Infrastructure Leasing & Financial Services (IL&FS) imploded. And more recently on June 4, bond defaults by mortgage lender DHFL came to light, which subsequently led to a slew of rating downgrades of the company and its shares tanked 15.86 per cent on Thursday.

However, with a view to strengthening the supervision and regulation of commercial banks, urban co-operative banks and NBFCs, the RBI Board had decided to create a specialised supervisory and regulatory cadre within the RBI, as announced on May 21.

“RBI does not regulate HFCs. Nonetheless, banks have significant exposure to HFCs and RBI in any case is mandated to look after the financial stability of the entire economy. In that background, we have been very closely monitoring the activity, the performance and the development in the NBFC sector, including HFCs. We are also monitoring major entities in this universe of NBFCs and HFCs,” said Governor Shaktikanta Das. He added that the central bank is ready to take regulatory action, without delay, to safeguard the financial stability of the economy, if required.

The statement, however, failed to instill confidence amongst the sector analysts. Ajay Bodke, CEO, PMS, Prabhudas Lilladher, said: “No specific measure has been announced that would provide immediate relief to the much-troubled NBFC sector. In the presser the governor did reiterate multiple times that RBI will do whatever it takes to ensure financial stability of the system. Jittery markets are facing a crisis of confidence with respect to the precariously perched NBFC (including HFCs) & fixed-income mutual fund sectors. It looks highly unlikely that these broad, motherhood statements will assuage market concerns. Specific & targeted solutions to rescue these besieged sectors alone can stem the panic and stop a further contagion. Inadequately forceful response to the ILFS bankruptcy has already created fear psychosis among market participants which is getting compounded by an almost blase regulatory treatment towards other troubled groups like DHFL, Essel, ADAG etc."