The present NBFC crisis is not India's Lehman moment, but just a liquidity problem and it's time for the non-banking financial companies to reinvent and consolidate to survive, feel some of the big-wigs from the sector. And the notion that financial institutions will never fail is a myth as they have failed in the past, and there will be many more instances, they add.
So, how do they plan to grow, given the challenges in the NBFC sector? "We are rising from the ashes. We have had to recalibrate. It was good for us that the crisis happened when we were at Rs 1 trillion, not Rs 2 trillion, otherwise it would have been a bigger disaster," says Gagan Banga, V-C, Indiabulls Housing Finance at Business Standard Banking Forum 2019. "Even SBI has made commercial mistakes. Such mistakes are part of ongoing business. Our mistake was not recognising the power of wholesale value," he added.
Khushru Jijina, managing director of Piramal Capital & Housing Finance, has a different story to tell. "We decided on real estate because of the group's expertise in the space. We got into wholesale in a bigger way. We got caught in the perfect storm. The single largest lesson learnt from the crisis is that your book needs to be granular," he said. Banks are lending, but do NBFCs have enough liquidity for growth? No, there is only enough fuel to survive, says Jijina.
Sreedhar Vegesna of PwC, however, says that the perception that the entire crisis is on account of real estate is not true. "There also are other sectors like auto which have been affected. Real estate has been a reason for the crisis, but not the only one. We need to look at the ability to take short-term lending and subsequently pass on to the players willing to take on long-term exposure," she says.
Jaspal Bindra of Centrum Business says, "There are enough NBFCs like us that are very granular, with no short-term borrowing, but they are facing the same crisis of liquidity that everyone else is facing.
Is it an housing finance companies' crisis rather than NBFCs? "If you look at NHB refinance regulation, there are strict rules in terms of balance-sheet. It started with NBFCs because of asset-liability issues, but as it moved forward, it turned into a crisis. You can never get enough liquidity on the asset side to cover your liabilities," says V Srinivasa Rangan of Home Loans By HDFC.
Were RBI and govt slow to react to the NBFC crisis? There was an initial feeling that it was a one-institution problem, but going forward, the issue was recognised, says Rangan.