MUMBAI: State Bank of India (SBI) has approached the Reserve Bank of India (RBI) to put a cap on non-banking financial companies’ (NBFCs) lender base. Currently, many NBFCs borrow from over 50-60 lenders at the same time.
The country’s largest bank believes that large number of lenders dilutes the ability to monitor NBFCs loan books significantly. “Almost all NBFCs today have a large number of banks as their lenders. In some cases, it can be upwards of 50-60 in their liability mix that crimps our ability to do due diligence,” a senior SBI official said. SBI did not respond to queries sent by FE till going to the press.
The senior official explained that there are multiple banks who are lenders to a single NBFC, but they seldom communicate or have meetings to gauge the performance of the borrower.
Their worries also stem from the fact that though NBFCs’ non-performing assets (NPA) have come down substantially, it is still on the higher side. That is, the gross NPA ratio of NBFCs has declined from a high of 7.2% in December 2021 to 4.6% in September 2023, according to the RBI’s December 2023 financial stability report.
Then, there are unlisted NBFCs as well whose data isn’t available on a regular basis. “So if there is any stress building up, it will be difficult for anyone to know,” another source said. He added that cases like Infrastructure Leasing & Financial Services (IL&FS) and erstwhile Dewan Housing Finance Corp (DHFL) have clearly shown that there could be a contagion effect if they go down.
To address these concerns, SBI has proposed that a consortium of lenders can be formed to take common lending decisions for, at least large-sized NBFCs. Further, a mechanism needs to be built that allows monitoring of all NBFCs’ performance.
Last October, SIDBI did try to bring all small NBFCs on its growth accelerator programme to become eligible for bank funding, however, the platform has not picked up. Proponents argue that joint platform will only pick up when all the major banks participate or the banking regulator puts its weight behind it.
While the apex bank seems to be seized of the situation and has increased the risk weights of bank loans to NBFCs, many believe that more can be done.
Source: The Financial Express