RBI shifts gear on NBFC liquidity concerns\, says financing condtions in best shape since IL&FS implosion
Kolkata: Non-banking finance companies' access to finances is probably in best shape since the implosion of IL&FS while borrowing cost has also come down, Reserve Bank of India said.
This is significant shift from RBI’s financial stability report released in July which flagged continued liquidity concerns for NBFCs.
“Market financing conditions for NBFCs, which had become challenging, have largely stabilised in the wake of targeted policy measures,” RBI Governor Shaktikanta Das said Thursday.
He said that even as non-food bank credit has slowed to 5.8% year-on-year as on July 8, compared with 12.2% rise in the same period previous fiscal, bank loans to NBFCs grew 25.7% in June. Loans to services rose at 10.7% and housing at 12.5% in the same period.
For AA+ rated three-year NBFC bonds, spreads over similar tenor G-secs have narrowed to 139 basis points on July 31 from 360 basis points on March 26. Commercial papers of NBFCs have softened to 3.80% on July 31 while rates have fallen to 3.40% for non-NBFC borrowers.
Das attributed this trend to the “abundant liquidity” made available to the inter-bank system.
Before Thursday’s policy, RBI had announced liquidity measures aggregating to about Rs 9.57 lakh crore since February which is equivalent to about 4.7% of 2019-20 nominal GDP.
“Abundant liquidity has supported other segments of financial markets too. In particular, MFs have stabilised since the Franklin Templeton episode. Assets under management of Debt MFs, which fell to Rs 12.20 lakh crore as on April 29, recovered and improved to Rs 13.89 lakh crore as on July 31,” the governor said.
In the financial stability report, the financial regulator however had raised concerns over possible capital erosion of NBFCs given the enhanced systemic risks in the context of Covid-19 which put to the entire financial system to test.
The capital to risk weighted assets ratio (CRAR) of the NBFC sector has fallen to 19.6% at the end of March 2020 from 26.2% as of March 2015.
About 9,601 NBFCs are registered with the RBI of which 66 are allowed to raise deposit from public and 278 are systemically important. The NBFCs are known to have achieved the last mile connectivity in credit delivery, better than banks, even as their combined balance sheet size is about one fifth of that of scheduled commercial banks.