NBFCs must monitor risk factors, says CEA
NEW DELHI: Non-banking financial companies (NBFCs) need to follow prudential measures to ensure that risks do not mount and be vigilant about the quality of lending in these difficult times, Chief economic adviser KV Subramanian said on Thursday.
He suggested that the use of technology, especially data analytics, artificial intelligence (AI) and machine learning can help improve the quality of assets.
Speaking at an event organised by industry body FICCI, he said Non-banking financial companies need to be careful about rollover risk or the asset liability mismatch and interconnected risk.
“While regulators are mandated to monitor these things, at an individual level every NBFCs need to monitor its rollover risk and interconnected risk as well because in times like these prudential measures must be taken by each NBFCs to ensure that risks do not mount,” he said.
He also noted that “another key aspect that must be kept in mind is that forbearance is necessary at this point of time but the previous episode of 2008-09 (global financial meltdown) illustrates very well the kind of zombie lending that continued...
evergreening happened that basically came back to really bite 3-4 years later.” Post global meltdown, there was a spurt in non-performing assets (NPAs) of banks.
During this difficult period, he said, NBFCs and their boards should be vigilant about lending. Talking about opportunities, Subramanian said the Bilateral Netting of Qualified Financial Contracts law that has been passed recently paves the way for credit derivatives.
It is a big move, he said, adding, bunch of reforms undertaken by the government in the agriculture and manufacturing sector also provide opportunIties to the sector.
Observing that the financial sector plays an important role in the growth of the economy, he said it happened during the growth phase of Japan and China.
“If you look at the Japanese economy in the 1980s, when it grew really well, of the top 25 banks globally, 18 banks were Japanese. If you look today, of the top hundred banks globally, 18 are Chinese. And yet the 5th largest economy in the world has only one bank in the global top hundred,” he said.
State Bank of India (SBI) at the 55th position is the only bank in the global top 100 list.