Lok Sabha Question No. 2780 (UNSTARRED), answered on 2022-03-21
Subject: Credit Crunch in NBFCs
Ministry: FINANCE
Asked by: Ritesh Pandey

## GOVERNMENT OF INDIA MNSTRY OF FINANCE

## LOK SABHA UNSTARRED QUESTION NO-2780 ANSWERED ON 21/03/2022

## CREDIT CRUNCH IN NBFCs

## 2780. SHRI RITESHPANDEY

Will the Minister of FINANCE be pleased to state:-

- whether the Government is aware that the Non-) ~Banking Financial Companies (NBFCs) are suffering   from credit squeeze, overleveraging; excessive   concentration; the massive between assets and liabilities, with some misadventures by some very entities; coupled match large
- (6) whether the Government has found any kind of permanent solution in policy-making to solve these problems in the NBFC sector and if so, the details thereof; and
- if not; the details of the measures the Government proposes to take to deal with the NBFC sector which is in a dire situation?

## ANSWER

## THE MNISTER OF STATE IN TH MNSTRY OF FINANCE

## (DR BHAGWAT KARAD)

- to (c): NBFCs are and supervised by the Reserve Bank of India (RBI) as per powers in it under the\_provisions contained in Chapter IIIB of the RBI 1934. RBI s Financial Stability Report   (FSR) of December 2019 highlighted the issue of asset mismatches of NBFCs in the aftermath of Infrastructure and Financial Services crisis. FSR of January 2021 reported that NBFCs were adversely impacted by COVID related stress: Also, as per FSR of December 2021, system level stress tests was conducted for a of 191 NBFCs under different risk scenarios and that the Gross Non Performing Asset (GNPA) ratio of the NBFCs stood at 6.5% and Capital to Risk Weighted Asset Ratio (CRAR) at 26.6% (as the minimum regulatory requirement of 15%). Further; as per RBIs report on and reserves of NBFCs expanded as some NBFCs raised additional via rights issues. NBFCs also built liquidity buffers, with their cash and bank balances growing: Balance sheet size of NBFCs increased from Rs 30.81 lakh crore in March 2020 to Rs 35.11 lakh crore in September 2021 mainly due to pick up in investments by NBFC \_ Non-DepositSystemically Important (NBFC-ND-SI): NBFCs also their extant high-cost borrowings for new debt at a lower cost: NBFCs are also gradually swapping their short-term borrowings for term borrowings and their borrowings from banks increased from Rs 6.94 lakh crore in March 2020 to Rs 7.31 lakh crore in September 2021. NBFCs credit increased from Rs 24.61 lakh crore in March 2020 to Rs 26.62 lakh crore in September 2021. With to asset management; the mismatch (inflows minus outflows) in one-two months, two-three months and three-six months buckets improved as on March 2021 vis-&-vis March 2020. regulated vested Act; liability Leasing sample sample against capital capital -taking\_ recycled long liability regard

Government and RBI have taken various steps to strengthen; to extend liquidity support and to increase credit flow to NBFCs, which includes, inter alia, the following:

- (@ NBFCs with assets over Rs. 5,000 crore have been asked to a Chief Risk Officer to improve the standards of risk management: appoint
- The Liquidity Risk Management framework of NBFCs was strengthened by RBI with the introduction of granular maturity buckets with tolerance limits and liquidity coverage ratio.
- (@ The  regulatory framework for NBFCs was revised in October 2021 effective from 1.10.2022 to introduce scale-based as introduction of common equity tier 1, leverage requirements, mandatory and qualification of board members. listing,
- RBI issued guidelines for appointment of Statutory Central Auditors /Statutory Auditors for NBFCs in April 2021 to improve the quality and standards of audit in the NBFCs
- (iv)\_ RBI issued guidelines on 24.6.2021 on  dividend distribution by NBFCs wherein the eligibility criteria for dividend pay-out were linked to their adequacy and net NPA levels, and a on the maximum dividend pay-out ratio was specified " capital ceiling
- (vi). a Prompt Corrective Action   (PCA) framework for NBFCs on 14.12.2021 effective   from 1.10.2022 based on their financials as at 31.3.2022. The framework   prescribes certain   mandatory and   discretionary actions on breach of parameters such as CRAR and Tier I ratio, net NPA ratio and leverage ratio as applicable: Some restrictions  includes  requirement of promoters to infuse additional reduction in  leverage  and concentration of  exposures, expenditure; borrowings. capital capital capital,
- (vi)  Goverment approved Special Liquidity Scheme of Rs. 30,000 crore to improve liquidity position of NBFCs (including MFIs) /HFCs.
- (vi)\_ Liquidity Adjustment Facility auctions, to inject liquidity in financial markets. regular Open
- (ix): announced On Targeted Term Operation scheme on 9.10.2021 for up to Rs. 1 lakh crore at repo rate with end-use guidance and on 5.2.2021 also permitted banks to funds to NBFCs for incremental lending to sectors\_ Repo Tap Long specified provide
- (xi) . Scheduled commercial banks other than Regional Rural Banks and Small Finance Banks have been allowed to engage with NBFC ND-SI to co-originate loans for creation of priority sector assets.
- (x)\_ An additional liquidity facility of Rs. 5,000 crore to National Bank for Agriculture and Rural Development  for a of at  repo rate was provided for refinancing NBFC MFIs and other smaller NBFCs of asset size of Rs. 500 crore and less. special period