Be more prudent

This refers to the editorial “Crisis in NBFCs” (September 26). In the Indian financial system, among others, banking and non-banking financial companies play crucial roles in developing the economy irrespective of whether they are in the public or private sector. While banking companies can mobilise resources from the public in the form of deposits, the NBFCs are not entitled to accept deposits from the public. The NBFCs are rated by credit rating agencies to enable them to issue debt papers. Rating is a deciding factor in attracting funds from mutual funds and in fact, these companies have to ensure the honouring of the financial commitments on time, else the rating gets adversely affected.

Resource mobilisation through the issue of bonds and the deployment of the resources mobilised need to be prudently matched to avoid default. While financing long gestation infrastructure projects, the NBFCs have to ensure that matching longterm liabilities are available to liquidate the debt-papers. At a time when the economy is under stress because of the elevated bad assets, any such crisis from the NBFCs will further worsen the functioning of financial system as is evident in the case of IL&FS. At this juncture, since the company is in public-private partnership, the intervention of the government is a welcome step.

VSK Pillai Kottayam