Ensure there are no defaults by NBFCs, Arun Jaitley tells top PSBs

According to sources, executives from SBI, PNB, BoB, and three more banks briefed the finance minister through video conferencing on the liquidity crisis in NBFCs

Executives of six large public sector banks on Friday assured Finance Minister Arun Jaitley and officials that they have enough financial firepower to support the non-banking financial companies (NBFCs) plagued by liquidity crisis.

According to sources, executives from State Bank of India, Punjab National Bank, Bank of Baroda, and three more banks briefed the finance minister through video conferencing on the liquidity crisis in NBFCs. Economic Affairs Secretary Subhash Chandra Garg and Financial Services Secretary Rajiv Kumar attended the discussions. 

Jaitley told the bankers to ensure there are no defaults on payments obligations by NBFCs. The bankers, in turn, are learnt to have told the minister and his officials that they have ‘sufficient liquidity”, and that while there are sectoral stresses, not many NBFCs have approached them even after they were provided higher lending room. 

The video conference with the bankers comes days after the board of Reserve Bank of India (RBI) held discussions on liquidity situation in the NBFC market. According to sources, the government had raised concerns related to liquidity crises among housing finance companies and smaller NBFCs.

However, the RBI felt that there is no systematic cash crunch and was not ready for a special refinance window for NBFCs, sources said. The economic affairs secretary and the financial services secretary are the two government representatives on the RBI board.

Last week, the RBI had announced regulatory relaxations and incentives, giving banks room to lend more to NBFCs and HFCs to increase liquidity. The measures were in the wake of the lending freeze witnessed following the IL&FS crisis, which also caused jitters in the stock markets.

The government had also demanded aligning the RBI’s prompt corrective action (PCA) framework with the global practices, in terms of internationally accepted Basel norms for banks. The Centre feels this will unlock capital to the tune of Rs 600 billion and help banks to provide liquidity to NBFCs and MSMEs. However, the RBI showed reluctance to ease the PCA framework. At present, 11 of 21 PSBs are under the RBI’s PCA framework. 

The government has agreed to advance the recapitalisation programme for PSBs to help them improve their finances. A top bank executive said the government was in touch with PSBs to understand their capital needs and was monitoring their finances. 

The government has infused around Rs 191 billion of the apparent target of Rs 650 billion in PSBs in the present financial year.