NBFCs have a reason to rejoice

Author: Anurag Bhullar

The recent meet held between NBFC representatives and the apex bank’s officials has caused RBI to think on the demand of easing the funding norms for NBFCs. This is needed not because of shrinking liquidity in the market but because banks are not very comfortable in lending to these companies. The cause being cited is that these companies are tremendously exposed to sectors like Real Estate, Retail Financing, which in turn are facing a downslide, so lending to these companies is a risky deal.

CPs (Commercial Paper) of worth ranging from Rs. 20,000 crore to Rs. 25,000 crore is to mature shortly. These are a means used by companies to raise short-term credit from banks. The instruments require being rolled-over, on every maturity date to maintain sufficient flow of short-term funds to these companies.
	The central bank is also revisiting the rules that govern placing with NBFCs the bank funds. The roadblock is the immediate roll-over of CPs that will be required. This amount can be anywhere between Rs.2,000 crore to Rs. 4,000 crore. This requirement is making RBI rethink on the proposal. However, something needs to be done in this direction soon as 3 or 4 NBFCs which have expanded greatly and been found to be over-exposed to stock market, real estate and retail financing.