Chaudhry said that promoters of NBFCs that are in need of capital should look at bringing in equity infusion without further delay.
The ongoing crisis in non-banking finance companies (NBFC) is related to specific companies and not for the sector as a whole but the time being taken to resolve the issue is becoming a matter of concern, said Amitabh Chaudhry, Managing Director and Chief Executive Officer of Axis Bank.
"Crisis is right now related to specific companies with asset-liability mismatch or where people are raising questions about asset quality. There are enough NBFCs with no issues. While it is not a systemic issue, the worry is that it will take time to resolve," Chaudhry said.
Chaudhry said that promoters of NBFCs that are in need of capital should look at bringing in equity infusion without further delay. He added that relying on regulatory and government intervention to bail out sick NBFCs would seem unfair.
In the Financial Stability Report released in June, the Reserve Bank of India (RBI) said that in case of further stress, around eight percent of NBFCs will fail to maintain the minimum regulatory capital requirements.
To enhance liquidity access for the sector, the government announced one-time 6-month partial guarantee of Rs 1 lakh crore to state-run banks for purchasing consolidated high-rated pooled assets of financially-sound NBFCs. The move was immediately followed up with liquidity easing measures by the RBI.
"In order to enable the banks to implement this announcement and deal with the NBFCs/HFCs issue effectively, the RBI will provide required liquidity backstop to banks against their excess G-Sec holdings," the central bank said in a release issued after the Budget announcement on July 4.
The IL&FS defaults created an environment of risk aversion, leading to shortage of liquidity in the sector. Investors, including mutual funds, cut their exposure to the NBFC sector, leaving them with no option but to turn to banks. As of March 2019, the share of bank loans to total borrowings rose to 29.2 percent from 23.6 percent in March 2018 and 21.2 percent in March 2017, data from RBI showed.
The budget also proposed strengthening RBI's regulatory powers over NBFCs. Chaurdhry said that this could help bring back investor confidence in the sector.
