In the last couple of weeks or months there has been a spate of asset sales by promoters of non-banking finance companies (NBFC) like Dewan Housing Finance Ltd., Reliance Capital, etc., to bring in money urgently to meet their debt repayments. That is a great relief to markets as many mutual funds, insurance companies and banks have exposure to NBFCs, and any payment default has the risk of triggering a contagion.

Risk aversion meant players who were perceived to be weak either had to raise money at a high cost, or resort to selling assets. So far, the regulator has been watching the sector closely, making some timely interventions, but staying off from the ever persistent demand of a direct liquidity window. When the issue first hit the roof, the RBI had made it explicit that it was ready to be the lender of last resort but there wasn’t a need then to do so. The RBI took measures to boost overall system liquidity through open market operations (OMO), brought in rupee-dollar swap to inject durable liquidity and relaxed foreign currency borrowing to boost inflows. Indirect interventions like letting banks buy loan books of NBFCs have had limited success, with banks obviously being choosy. So far so good.

But things may get rugged in the coming months as Bloomberg data shows that as much as a record `1.1 lakh crore of domestic bonds would be due next quarter. In the first and second quarters of 2020, it would be around `1 lakh crore worth of bonds to refinance and it can hit a high of `3.9 lakh crore overall next year. With such large sums due for repayment, it may be inevitable that the RBI comes up with a special liquidity window for NBFCs. It may perhaps do well to exclude the wholesale loans, builder loans and at least be open to providing liquidity towards the retail housing loans and MSME loan portfolio. The ability of stronger NBFCs and banks to continue to lend without hiccups is necessary to revive a slowing economy, and in that process special attention to weaker NBFCs might be necessary.