28 August 2019: Reserve Bank of India (RBI) Governor Shaktikanta Das may have ruled out an Asset Quality Review for NBFCs, but an ongoing central bank inspection of the books of non-bank companies shows that the exercise is as stringent as the official scrutiny that had earlier pushed high-street lenders to declare higher bad loans.
The RBI engagement is so intense that even some of auditor-accepted practices of bad loans are given a go by and inspectors are insisting on classifying even good loans as bad, said sources. RBI has increased the scrutiny on NBFCs exposures, quality of assets and asset-liability mismatches (ALM). NBFCs have faced tough liquidity conditions due to an increase in funding costs and difficulties in market access.
The Asset Quality Review of the RBI had opened a can of worms for banks. It ended the practice of banks and businesses sugar-coating bad practices as social necessity. Since 2014-15, NBFCs have expanded credit rapidly when banks were battling bad loans. They benefitted from easy liquidity. “Today audit is more detailed than in the past,” said Umesh Revankar, CEO, Shriram Transport Finance. “Earlier, they were looking at credit quality… now they are looking more indepth. RBI is asking for top 50-100 assets that have gone bad. It gets into the details, including deviations.”
Asset classification has been brought on a par with banks, and asset quality has deteriorated over the past financial year. Gross NPAs of the NBFC sector as a percentage of total advances have increased from 5.8 per cent in 2017-18 to 6.6 per cent in 2018-19.
“RBI never looked at the ALM root cause until the DHFL crisis, and it started asking for the ALM report frequently,” said the CEO of an NBFC.
Categories: General News