NBFC liquidity faces test as ~1 trn matures in Nov
Non-banking financial companies’ liquidity issues, a major point of contention between the RBI and the Centre, will come to the fore in the coming weeks. A staggering ~1.034 trillion of NBFC debt is set to mature by the end of November.
The liquidity issues facing the nonbanking financial companies (NBFCs), a major point of contention between the Reserve Bank of India (RBI) and the central government, will come to the fore in the coming weeks.
NBFC debt worth ~1.034 trillion is set to mature by the end of November, according to the data accessed by Business Standard.
Two days are particularly critical. On November 5, debt totaling ~113.8 billion is set to mature, while on November 26, debt worth ~147 billion is coming up for redemption.
With reports suggesting that banks are hesitant to lend to NBFCs after the IL&FS crisis, the worry is that failure to roll over these loans or another default could further rile markets. The situation has become acute because of the prevailing sentiment, experts told Business Standard.
And while government officials said that the liquidity issue is more severe than is being admitted by the RBI, the central bank is reported to have contested the Centre’s view that NBFCs are facing a liquidity crunch in a systemic way at the financial stability and development council (FSDC) meeting.
On its part, the RBI has carried out open market operations (OMOs) of ~360 billion in October and has announced OMOs worth ~400 billion in November. The first tranche of ~100 billion was carried out on Thursday. But experts said that while OMOs will have an impact on systemic liquidity, they may not address the liquidity concerns facing NBFCs. And with banks reluctant to lend to NBFCs, refinancing the loans that are maturing will be difficult. “The fear is that the liquidity issue might turn into a solvency issue,” said an economist.
Data accessed by Business Standard also shows that ~588.5 billion worth of NBFC debt is set to mature in December, placing the total value of debt maturing over November and December at ~1.62 trillion.
This data does not include entities such as NABARD and NHB.
Some have suggested that to tide over the crisis, the RBI provides a special window to NBFCs. But recent reports suggest that the central bank is wary of such an approach as it might be misused and it may end up providing liquidity to all those who approach it. But the situation is more complicated. The foremost issue is that of collateral — what the NBFCs offer as collateral. Then there’s also the issue of interest rate and the tenure of the loan.