Kolkata: Reserve Bank of India has flagged off fresh liquidity concerns for non-banking finance firms (NBFCs) with their share of market funding falling ever for the reason that IL&FS fiasco got here to light. The stress take a look at on NBFCs additionally revealed that as much as one-fifth of the NBFCs might fail to adjust to the minimal capital norm.
The systemic dangers can intensify within the context of Covid-19 because the power of the general monetary system has now been put to check following the sp of the pandemic.
“The declining share of market funding for NBFCs is a concern as it has the potential to accentuate liquidity risk for NBFCs as well as for the financial system,” RBI said in its July monetary stability report.
RBI has additionally acknowledged the frequent market chorus that banks and larger lenders have largely shunned the smaller and decrease rated NBFCs in offering liquidity assist even because the regulator devised a focused window for those that are in dire wants.
With the waning of market confidence, the share of long-term market debt in complete borrowings of the NBFC sector dipped to 40.8% on the finish of December from 49.1% at finish of March 2017. The consequent funding hole was met by financial institution borrowings, which rose to 28.9% from 23.1% of complete borrowings over the identical interval.
The regulator’s system-level stress exams for the NBFC sector’s combination credit score danger exhibits that the sector’s CRAR (capital to danger weighted property ratio) may decline as a lot as 200-400 foundation factors from 19.6% seen on the finish of March. The stress take a look at outcomes on particular person NBFCs point out that 19.5% of the businesses might not have the ability to adjust to capital norms under excessive instances.
The CRAR of the sector has fallen from 20.1% on the finish of March 2019 and from 26.2% as of March 2015.
The gross non-performing property ratio of the NBFC sector declined throughout successive quarters until September 2019 when it was at 5.6%, however then surged to six.4% on the finish of March.