Commercial banks led by State Bank of India (SBI), with an exposure of over Rs 4,73,500 crore to non-banking financial companies (NBFCs), have assured liquidity support to the NBFC segment following intense speculation that the NBFC sector was facing a debt crisis. The trigger was the default by the IL&FS group which defaulted on repayment in the last two weeks, industry sources said.
Refuting reports that the bank was wary of lending to NBFCs, SBI chairman Rajnish Kumar said: “The rumours are baseless. SBI lends support to NBFCs in private and public sector within the regulatory policy framework and will continue to do so. In fact the recent regulatory guidelines on the co-lending model open up further opportunities for collaboration between SBI and non deposit taking NBFCs to increase lending to priority sectors.”
“There is no concern on liquidity of NBFCs in view of their liquid cash position and availability of committed lines,” Kumar said. Stock markets had on Friday witnessed a panic sell-off as shares led by mortgage lenders Dewan Housing Finance and Indiabulls Housing Finance tumbled amid reports of default by a finance company and rumours of a debt crisis in the NBFC sector. The BSE Sensex, which opened on a strong footing, suddenly plunged 1,127 points, or 3.03 per cent, to hit a low of 35,993.64 in the afternoon trade, before staging an equally sharp recovery within minutes. It finally closed at 36,841.60, down 279.62 points. The Sensex saw an intra-day swing of 1,495 points.
Shares of housing finance firms slumped on fears of a liquidity crisis. Reports of debt defaults by IL&FS also sparked concerns, which spilled over into other NBFC counters. The RBI has ordered a special audit of IL&FS Financial Services following its defaults in the CP market.
The Reserve Bank of India supervises 11,174 NBFCs of which 249 are NBFC-Non Deposit taking Systemically Important ones. The RBI has initiated supervisory action against those NBFCs which are non-compliant, inactive and not meeting the minimum net owned fund (NOF) criteria, thereby tightening the supervisory regime. During the last round of inspections, the risk-focused model was tried out in parallel to the existing inspection report format and the same has been finalised and is being implemented from the current inspection cycle 2018-19, the RBI said.
The bond market also witnessed redemption pressures. “Our redemptions are in line with what the fund industry is facing this September. We wish to give you confidence, that we are not facing any redemption pressure beyond the seasonal outflows. This can be seen from the fact that DSP Investment Managers’ total AUM (including advisory) as on September 19, 2018 was RS 106,245 crore as against Rs 111,912 crore in August end,” DSP Mutual Fund said in a statement.
“In the normal course of business, mutual funds receive redemptions during calendar quarters as investors need funds to pay their direct and indirect tax obligations. Generating liquidity for this purpose is a planned activity for our funds,” DSP Mutual Fund said.
Dewan Housing Finance Ltd (DHFL) which plunged by 42.4 per cent on the BSE denied reports that it has defaulted on repayments. “We wish to categorically state that DHFL has not defaulted on any bonds or repayment nor has there been any single instance of delay on any of its repayment of any liability. We do not have any exposure with IL&FS,” Kapil Wadhawan, CMD, DHFL said.