Shares of HFCs and NBFCs tank, RBI says won't hesitate to take steps

Without coming up with any definitive measure to aid the crisis-hit non-banking financial companies (NBFCs), the Reserve Bank said on Thursday it was closely monitoring developments in the sector and would not hesitate to take measures required.

RBI Governor Shaktikanta Das said: “We are monitoring major entities in the universe of NBFCs and HFCs (housing finance companies). The individual entities themselves are resorting to measures using market mechanisms to mobilise additional liquidity to meet liabilities and commitments. RBI remains committed to ensure we have a robust, well-functioning NBFC sector. 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.” 

Absence of concrete measures by the RBI to support the NBFC sector disappointed investors. Shares of Dewan Housing Finance Corporation (DHFL) crashed 15.86 per cent to Rs 93.90 — the lowest level in over five years. Shares of Shriram Transport Finance, Reliance Capital, Indiabulls Housing Finance, and Edelweiss Financial Services each fell more than 7 per cent amid risk aversion among investors. In comparison, the benchmark Nifty fell 1.5 per cent and Bank Nifty index declined 2.3 per cent.

“While it is too much to expect the RBI to provide solutions for the ills affecting NBFCs, an immediate measure would have made participants more positive about markets. Liquidity is more important at this stage than the cost of funds,” said Deepak Jasani, head-retail research, HDFC Securities.

Khushru Jijina, managing director, Piramal Capital & Housing Finance, said: “We anticipate more decisive and pro-active policy measures to address the current liquidity crisis that will enable NBFCs to restore lending activities, especially to critical sectors.” 

Recently, DHFL defaulted on interest payment of around Rs 1,000 crore to its debenture holders, thereby increasing the risks of full-blown crisis in the sector. The problems in the NBFC sector came to the fore after Infrastructure Leasing & Financial Services (IL&FS) defaulted on its debt obligations, thereby exposing the asset-liability mismatch in the sector.

Since September 2018, the NBFCs have found it increasingly difficult to raise money from conventional avenues, as the banks and mutual funds have been exercising caution. The cost of funds has also seen an uptick for such entities, worsening their situations. They have been relying on non-convertible debentures, commercial papers to raise money. Recently, many of the better-performing NBFCs and HFCs started tapping the overseas market for funds through external commercial borrowings and Masala bonds.

Disbursals have taken a big hit, too. Many have resorted to selling specific loan portfolios where the risk is more but there are hardly any takers for these, thereby adding on to the misery of these entities.

The RBI has always maintained that they would take adequate steps when required. After the second bi-monthly monetary policy meet in this financial year, Das said: “The periodicity of the NBFC supervision has been reduced to 12 months from 18 months. Major entities are also being closely monitored. When we are monitoring individual entities, we have all the data and we know what exactly the position is.”