NEW DELHI, June 10: Financial institutions are expected to drastically curtail their exposure to non-banking finance companies (NBFCs) in the wake of the CRB Capital Markets fiasco.Institutional sources said NBFCs not backed by established corporate houses may find it difficult to raise funds from FIs.``We have to be more cautious with NBFCs. The CRB fiasco has underscored the crisis faced by the financial services industry,'' a top executive of an FI said. Sources said CRB had approached certain FIs for loans barely a few months before the company went bust.Almost all major financial institutions, including IFCI, ICICI and IDBI have exposures in non-banking finance companies.The credibility and standing of auditors as well as rating agencies will play a crucial role. The performance of NBFCs in terms of timely repayment of fixed deposits and other debts raised in the past will also be scrutinised in detail by the FIs.The failure of the CRB has put a question mark on the ability of credit rating agencies to properly judge the financial position of an NBFC. Sources said credit ratings provided by an agency would henceforth cease to have much significance as far as exposure to NBFCs was concerned.Although FIs have their own methodology of gauging risk, their decisions have so far been greatly influenced by the ratings that NBFCs have managed to obtain from the rating agencies.Sources said loans sanctioned to some NBFCs in the past few months had been put on hold. These companies are likely to be reviewed again before the sanctioned loans are disbursed.In case of CRB, many public and private sector banks are likely to lose their funds. The biggest loser will be the State Bank of India (SBI) which provided loans to CRB disproportionate to the securities. The same has been the problem with the private sector banks, who will have to pay for imprudent financial decisions.Henceforth, the NBFCs will find it difficult to raise funds from banks. The banks, sources said, have also become cautious as far as exposure to NBFCs is concerned.The NBFCs will also find it tough to raise funds from small investors, who have started withdrawing their deposits despite high returns being offered by them. The government is trying to restore the confidence of people in the NBFCs by deciding to explore the possibility of having some insurance on such deposits. The industry, however, is apprehensive of the move .
