Reserve Bank Governor Shaktikanta Das on Thursday said the central bank is closely monitoring the developments in the NBFC (non-banking financial companies) sector and housing finance companies (HFCs) and will ensure that financial stability is maintained.
“We have been closely monitoring the performance and developments in the NBFC and HFC sectors,” Das said during the post-RBI policy conference. Stating that the central bank is committed to have a robust NBFC sector, he said, “the RBI will not hesitate to take any measure to ensure financial stability in the sector.” Das was responding to queries about the NBFC sector in the wake of the downgrade of over Rs 1 lakh crore liabilities of DHFL to the ‘D’ category, indicating default status. Many NBFCs started facing liquidity problems after the massive default of IL&FS in late 2018.
“The RBI does not regulate HFCs. Banks have significant exposure to HFCs and the 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,” Das said.
However, the rate cut failed to cheer the market with the 30-share BSE Sensex plunging 554 points to settle at 39,529.72 as concerns over the liquidity crisis in the non-banking financial sector unnerved the investors.
Das said that the central bank is ready to take regulatory action, without delay, to safeguard financial stability of the economy, if required. “The RBI remains committed to ensure we have a robust, well functioning NBFC sector and the RBI will not hesitate to take whatever steps are required to ensure that financial stability is not adversely impacted in any manner by any development,” he said.
Das also said that the central bank has reduced the periodicity of NBFC supervision from 18 months to 12 months and is well aware of the position of top entities operating in the sector. “Individual entities themselves are resorting to various measures using market mechanisms to mobilise additional liquidity and additional resources to meet their liabilities and commitments,” he said.
In May this year, the Central Board of the RBI decided to create a specialised supervisory and regulatory cadre within the RBI in order to strengthen the supervision and regulation of commercial banks, urban cooperative banks and non-banking financial companies.
The RBI has also asked NBFCs with asset size of more than Rs 5,000 crore to appoint a Chief Risk Officer (CRO) with clearly specified role and responsibilities amid growing worries over an “imminent crisis” in the NBFC sector due to credit squeeze, overleveraging, excessive concentration, massive mismatch between assets and liabilities and misadventures by some large entities like the IL&FS group.
Meanwhile, the RBI said liquidity in the system turned into an average daily surplus of Rs 66,000 crore in early June after remaining in deficit during April and most of May due to restrained government spending. The central banks injected liquidity of Rs 70,000 crore in April and Rs 33,400 crore in May on a daily net average basis. It conducted two OMO purchase auctions in May amounting to Rs 25,000 crore and a US dollar buy/sell swap auction of $ 5 billion for a tenor of 3 years in April to inject durable liquidity into the system.