Govt vs RBI: What data says about shadow banks' debts, credit flow to MSMEs

NBFC debt maturing in Nov and Dec estimated at Rs 2.2 trillion

Over the past few weeks, the central government and the Reserve Bank of India (RBI) have been locked in an intense debate over several issues. Three are of critical importance. First, ever since the implosion of IL&FS, many have been concerned about the liquidity crunch facing non-banking financial companies (NBFCs). As shown in Chart 1, Rs 2.2 trillion of NBFC debt was set to mature in November and December. And while there were concerns that NBFCs may not be able to roll over their debt, so far there has not been any default. 

It is possible that financial institutions such as LIC and SBI have stepped in. Mutual funds may have also helped roll over debt. It is equally possible that higher securitisation transactions may have also helped (Chart 2). The other issue centres on credit flow to MSMEs. Some have argued that bank credit to micro and small industrial firms had slowed considerably as many banks had been placed by the RBI under its prompt corrective action (PCA) framework. However, as seen in Chart 3, bank credit to medium and large-scale industrial firms has also been sluggish. By comparison, as seen in Chart 4, credit to micro and small enterprises in the services sector has soared over this period. 

On the issue of the RBI’s PCA framework, at the aggregate level, these banks have seen their gross non-performing loans decline. But with their credit also shrinking during this period, GNPA as a percentage of advances has risen (Chart 5). And while their cumulative losses have declined (Chart 6), only three, namely Bank of Maharashtra, Corporation Bank and Oriental Bank, have reported profits. Of these, the latter two appear to be in better shape (Chart 7). 

On the issue of the RBI’s capital level, much of the rise in reserves in recent years is on account of the currency and gold revaluation fund (Chart 8). By comparison, the RBI’s contingency reserves have barely registered a rise over the past decade.

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines; Compiled by BS Research Bureau