Banks need to take larger haircuts for any governance failure in NBFCs: RBI Governor Shaktikanta Das

There is a need to find a market-linked mechanism to resolve the issues of the non-banking finance companies (NBFCs), and lenders need to take a larger haircut if there were governance lapses, Reserve Bank of India (RBI) Governor Shaktikanta Das said September 19.

“The resolution process will have to be market-linked and in this banks and other lenders will have a major role to play. NBFCs where there are major governance issues, there (banks) need to take a larger haircut,” Das said at an event.

Das said there are business failures, but there are also elements of administrative or governance lapses. “So banks will have to take a balanced call. But essentially, the market mechanism would include the primary proactive role to be played by the promoters, lenders and other stakeholders,” he added.

The market-linked mechanism would mean that current promoters go for a stake sale to bring new money into the setup. “There has to be an inflow of resources either by stake sale or by bringing new promoters or by securitization of assets,” Das said.

RBI is monitoring top 50 NBFCs and some housing finance companies which account for 75 percent of the loan outstanding, he said.

“As and when the situation arises in any one of them, we will use this power,” he said referring to the authority entrusted to the banking regulator for the supervision of NBFCs.

NBFCs have been facing severe turbulence over the past year after two major defaults—IL&FS and Dewan Housing Finance Corporation (DHFL)—rocked the shadow banking sector.