Letter to BS: One of the reasons for slowdown is problems in NBFC sector

This refer to "What next, Reliance Home Finance?" (January 20). If Reliance Home Finance goes bust it will be in a long line of NBFCs/HFCs, namely, IL&FS, Altico, Reliance Capital, DHFL, DHIL to have gone that way. Many of them have diverted bank funds to either group companies or related ones. Some of them have lent for infrastructure without carrying out due diligence and with disregard to their asset-liability structures.  One of the reasons for the downturn in the Indian economy is problems in the NBFC/HFC sector. The bad news there doesn’t seem to end. Since banks have lent to these institutions it impacts them as well. 

This is an appropriate time for the supervisory authorities to conduct asset quality reviews (AQR) of the large NBFCs/HFCs which are facing problems to know the real quality of the assets they hold. The advantage of this is not only greater transparency, but also that timely steps can be taken to ameliorate the situation. By not doing AQRs we will continue to be surprised seeing some of the big ones fall. The problems of these institutions won’t go away immediately, but timely proactive steps will limit the damage they cause to financial system.
 

Arun Pasricha, New Delhi

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