RBI-DAS-NBFCS

Banks with exposure to poorly-run NBFCs will have to take
larger haircuts, warns governor
    Mumbai, Sep 19 (PTI) Banks will have to take more
haircuts while resolving the stressed loans extended to non-
banking lenders who are found wanting on the corporate
governance front, Reserve Bank governor Shaktikanta Das
warned Thursday.
    On the government move to have merge 10 banks to four
larger ones, Das said the amalgamations ought to be non-
disruptive and affirmed the central bank's support to ensure
the same is achieved.
    Das' comment on non-banking finance companies (NBFCs)
comes at a time when banks are grappling with the resolution
of stressed cases like their over Rs 50,000 crore dues from
mortgage financier DHFL. The Wadhawans-promoted stressed
entity was accused of corporate governance lapses in the past.
    "(In resolving the crisis at those) NBFCs which have
major governance issues, they (banks) need to take a larger
haircut. These are business failures but there is also an
element of administrative or governance lapses in them, " Das
said while speaking at an event organized by Bloomberg News
here this evening.
    Das further said banks will have to take a "balanced
call" while dealing with the issues of stressed loans. He,
however, made it clear that RBI will not immediately resort to
using recent amendments in the statutes which empower it to
take control of an NBFC, as the first priority is be to find
"market based" solutions for the same.
    The market-based solutions can involve promoters
cutting stake, new promoters coming in or securitisation of
the assets to raise resources to come out of liquidity issues.
    He said RBI continues to monitor the 50 largest NBFCs
on a continuing basis and it will be using the powers of the
amended statutes only if any need arises.
    It can be noted that the going has been tough for many
an NBFC over the last one year, since infra-focused sectoral
major IL&FS started defaulting on its loans, exposing the
chinks in the sector that contributes a fifth of the total
credit assets of the country beginning last September.
    The IL&FS saga triggered a liquidity crisis among
NBFCs immediately, but RBI refused to play its role as the
lender of last resort, attributing the crisis to asset
liability mismanagement.
    NBFCs typically depend on short-term borrowing to
finance long-term assets like home loans, which has led to the
troubles in the sector, the RBI had said.
    On the issue of bank mergers, Das said the move by the
government will have to be non-disruptive and normal
operations, including lending and recovery of dud assets
should not be impacted because of the same.
    Boards of most of these 10 banks are yet to take
decisions on the mergers, and the RBI will fully help to make
the mergers process as smooth as possible, Das said making it
clear that the issue will reach RBI only when the boards
decide formally.
    Das said these banks have formed internal working
groups to make the merger process smoother. PTI AA
BEN BEN

(This story has not been edited by THE WEEK and is auto-generated from PTI)