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Last Updated : May 22, 2019 12:40 PM IST | Source: Moneycontrol.com

RBI is against extending credit line to struggling NBFCs: Report

The RBI board, spearheaded by Governor Shaktikanta Das, convened in Chennai on May 22 to discuss the ongoing crisis in NBFCs

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The board of Reserve Bank of India (RBI) is against providing a credit line to unstable non-banking financial companies (NBFCs), saying there is no internal liquidity issue but solvency concerns in large firms, Business Standard reported.

The RBI board, spearheaded by Governor Shaktikanta Das, convened in Chennai on May 22 to discuss the ongoing crisis in the NBFC space and its controversial 'resolution of stressed assets' framework, which it had released in February last year.

The central bank is working towards a more stable NBFC sector by way of a liquidity framework in the pipeline. It is not planning an asset quality review (AQR) of the NBFCs anytime soon, but large entities in the sector have been asked to submit plans for capital infusion and asset monetisation, according to the report.

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A source told the paper that the issue was discussed at length but 'liquidity is enough in the system'. Recently, RBI had ordered NBFCs with assets of over Rs 5,000 crore to appoint chief risk officers (CROs) to keep the liquidity of the firms in check.

The board also decided that banks would not be forced by RBI to take stressed assets to the National Company Law Tribunal (NCLT) for insolvency proceedings, but would 'incentivise them' through new norms.

Moneycontrol couldn’t independently verify the report.

RBI's February circular had stated that accounts in default of Rs 2,000 crore or more can be taken to the bankruptcy court. If that doesn't help, banks could drag the companies to the NCLT as well. It was considered a default even if there was a day's delay in repaying the loans.

This paved the way for a huge disagreement between the government and the regulator, and is possibly the reason why Urjit Patel stepped down from the post of governor.

In April, the Supreme Court ruled that the RBI would have to take the Centre's permission in each such case before allowing banks to start insolvency proceedings.

"The reading from the Supreme Court judgment is that banks cannot force a company to the NCLT. But if they don’t do it, banks may be asked to make steep provisions," a source told the paper.

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First Published on May 22, 2019 12:40 pm
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