NBFCs hope for respite in 2020

Asset quality pressures, liquidity squeeze, asset-liability mismatches, higher borrowing costs, rising defaults levels and rating downgrades made 2019 a tumultuous year for NBFCs or the shadow banks.

Having lost a year and more since the industry major IL&FS went belly up in Sept 2018, NBFCs expect that the fiscal and monetary measures will help them come out of the deep tunnel, and to regain their lost importance in the financial system as they have been the key financial intermediaries delivering the last mile credit to the needy all these while. “The outlook is positive as the Centre and the RBI have already announced a lot of measures to help the NBFC sector,” says Shriram Transport Finance MD Umesh Revankar.

To alleviate the stress in the sector, the government and RBI announced several measures such as allowing banks to provide partial credit enhancements to bonds issued by NBFCs, relaxing the minimum holding period to encourage loan securitisation.

Other measures include end-use of restrictions on external commercial borrowings, loan co-origination with banks, introduction of liquidity coverage ratios and a one-time partial credit guarantee scheme, among others.

The amendments to the RBI Act gave the central bank the powers to strengthen governance at NBFCs to protect depositors/creditors’ interest and secure financial stability.