No NBFC crisis, but cause for caution: Crisil CEO

MUMBAI: The situation for non-banking finance companies (NBFCs) would have worsened had steps not been taken to alleviate the industry’s problems, according to Crisil CEO Ashu Suyash. She added that while there is still cause for caution, there is no crisis.

“We need to see support coming through for some of the stressed sectors,” said Suyash, addressing newspersons in Mumbai. Earlier this month, the rating agency had come out with a report which said that timely access to bank funding was critical for NBFCs.

Crisil Ratings senior director Krishnan Sitaraman said ILFS was the first major default in the NBFC sector in over 15 years and had shaken lenders to the sector. What made things worse was that the debt markets in India lacked depth. The crisis was prevented from snowballing after public sector banks announced that they would buy assets from finance companies, providing them much needed liquidity.

“We are also seeing many of the finance companies raising long-term debt by issuing bonds to retail investors. A large part of the redemptions, which were due in November, have also gone through,” said Krishnan.

NBFCs were caught on the wrong foot when the crisis in ILFS broke out. The inability of the infrastructure financier to repay debts caused credit to this sector to dry up. Many finance companies were in a spot as they had expanded their balance sheet with long-term assets using three-month funds, which they kept rolling over. Crisil sees headwinds getting stronger due to global factors. “We are seeing more conversations on protectionism and this is not ending. According to an SP analysis, while a US-China trade war could knock out 100 basis points (1 percentage point) of growth from China, it would also reduce US growth by 100bps,” said Suyash. She said that in the past, India had the advantage of “imported growth”, which was unlikely now.

On the recent regulatory crackdown on rating agencies in the wake of the sudden default by ILFS, Suyash said that raising the regulatory bar has put India right on the top in global standards. “It levels the playing field for us as we put all our methodology in the public domain,” she said.

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