RBI against special NBFC window

The RBI, which has already held discussions with NBFCs, is of the view that not all of them are stressed and it is only a few that are highly leveraged due to aggressive lending in the past.

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Reuters
NEW DELHI: The Reserve Bank of India (RBI) is not keen on offering a lifeline to stressed non-banking finance companies (NBFCs), despite strong pitch by NITI Aayog and industry players.

The government think tank has made a strong case for a special lending window for NBFCs to tide over a cash crunch in the wake of IL&FS’ collapse, which has made banks wary of funding the sector. In addition, NITI Aayog has sought a higher lending from banks for the sector, arguing that Raghuram Rajan had opened a similar window during his stint in the RBI.

Finance ministry officials, however, said the central bank was not keen on accepting the proposal, at least for now. The RBI, which has already held discussions with NBFCs, is of the view that not all of them are stressed and it is only a few that are highly leveraged due to aggressive lending in the past.


RBI

The RBI is wary of opening a special lending window, given that the finance companies had lent to weaker companies, including several in the stressed real estate sector. “A large number of them are companies that could not get funds from the banking sector and therefore had to go to NBFCs. The quality of the security may be suspect and it may be tough to accept the rating on face value,” said an official, acknowledging RBI’s concerns.

NBFCs have been making a case for a bailout, arguing that the fund crunch in the market is impacting consumer demand, which is visible in declining auto sales and consumer loans. The housing sector, which was already in the grip of a slowdown, is said to be impacted more.

The demand for lending a helping hand to NBFCs comes at a time when a new government is on the verge of taking office.

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