Lenders wary of loans to NBFCs

State-owned banks fear Finance Minister P Chidambaram’s directive to lend to mutual funds and non-banking finance companies may result in a sharp increase in delinquencies.

“The NBFCs (non-banking finance companies) have contaminated assets. The FM (finance minister) was saying around Rs 3,50,000 crore of assets are there with NBFCs. So, something goes wrong, then the whole banking system will be contaminated,” a chairman of a public sector bank, who attended the meeting with Chidambaram, said.

Chidambaram met heads of state-owned banks yesterday to review the half-yearly performance of banks and also discuss several other issues like credit policy, lending to mutual funds (MFs), NBFCs, capital adequacy in the medium term, asset quality and liquidity position.

Most NBFCs do not have transparent business practices and have exposures in risky sectors like real estate and capital market, bankers said.

Recently, the Reserve Bank of India (RBI) had opened a separate window for mutual funds and NBFCs, where banks can avail themselves of the additional liquidity support of up to 1.5 per cent of their net demand and time liabilities (NDTL).

“The NBFCs are fishing in troubled waters. These NBFCs and MFs were panicking and, therefore, PSU banks will now have to bear the brunt,” a head of another state-owned bank gave vent to his feelings.

RBI had said it will provide Rs 20,000 crore under the special repo window to banks for on-lending to MFs and NBFCs. However, most banks have not yet been aggressively using this facility to lend to MFs and NBFCs.

After the meeting with bankers, Chidambaram said he had asked banks to use the special window for lending to MFs and NBFCs.

“If they access it, they can get a spread of 350 bps. They will borrow at 7.50 per cent from RBI and can lend to MFs and NBFCs at 11-12 per cent,” Chidambaram had said.