Timely data on NBFCs can avoid IL and FS-type crisis in future: Garg

Following the liquidity crisis in NBFC major IL&FS that began last August, the entire non-banking financial services sector has been passing through a crisis, primarily related to liquidity and many blame the same to a crisis of confidence rather than anything fundamental.

Following the IL&FS defaults, many major NBFCs like DHFL and Indiabulls among others had bad times leading to a massive fall in their stock prices.

“Sound regulation is necessary for the development of NBFCs. Any regulation that throttles growth is not a good regulation,” Garg told a CII summit on the sector. There is a need to create regulations that serves the needs of NBFCs and investors, and also those of the borrowers, and thereby serving the overall financial stability, he said.

“IL&FS crisis shows there are lots of gaps not only in terms of regulations but also in data collection, information, interaction with the government or the regulators. “Today, we don’t even know who to talk to in NBFCs and there are no organisations that represent them,” Garg said.

Underlining the need for robust and real-time data, Garg said the government is trying to work with the Reserve Bank to create a system for more information aboutthe sector.

“Data-points are very poor today when it comes to NBFCs. When the IL&FS episode happened, we wanted to look at how much change is taking place in financing side, where who they are lending to and what kind of assets they have. We don’t have the data on NBFCs even on a monthly basis, forget daily, which we need,” he said. Garg also called for a better and mature understanding of the funding needs of NBFCs saying they need large,long- term funds.