Mumbai: Gross non-performing assets (GNPAs) of non-banking financial companies (NBFCs) increased to 6.1% of total advances in September 2018, from 5.8% in March 2018. This has been revealed in the December 2018 edition of Financial Stability Review of the Reserve Bank of India (RBI). The review is published every six months.

The rise in NPAs seems to have impacted the industry’s minimum capital levels also. Against a mandated minimum 15% capital (combined tier-I and tier-II) of its aggregate risk-weighted assets, the NBFC sector’s capital decreased to 21% in September 2018, from 22.8% in March 2018.

RBI governor Shaktikanta Das advocates caution in his foreword to the report: “The recent developments in non-banking financial companies (NBFCs) have underscored the need for greater prudence in risk-taking. There is, in particular, a need for some rebalancing as excessive credit growth, especially if funded with short-term financing, either sectorally or overall, is not stability-enhancing." A repayment default by Infrastructure Leasing and Financial Services Ltd in 2018 has increased the risk perception of NBFCs as an asset class.

The RBI report shows NBFCs have been increasing their reliance on long-term loans from commercial banks-

In terms of the financial sector’s inter-linkages and stress testing of contagion possibilities, the review shows that NBFCs were the largest net borrowers from the financial system, with gross payables of around 7.46 trillion. The highest funds were received from commercial banks, followed by mutual funds and insurance companies. The share of commercial banks has been increasing over the past few quarters. The report further reveals that NBFCs have been increasing their reliance on long-term loans from commercial banks and commercial paper investment from mutual funds.

In comparison to its high level of payables, NBFCs had gross receivables of only 56,000 crore at September-end 2018.

Interestingly, housing finance companies and NBFCs were the largest issuers of commercial papers (CPs) and mutual funds the biggest investors. “There has been a substantial increase in the size of the outstanding CPs between September 2017 and September 2018," the Review said.

As of 30 September, there were 10,190 NBFCs registered with RBI. Of these, 108 are deposit-accepting NBFCs and 276 are categorized as systemically important non-deposit accepting NBFCs. The aggregate balance sheet size of the NBFC sector increased to 26 trillion by September, a 17.2% growth over September 2017. There was a 5.8% increase in the capital levels though borrowings grew by over 17%.

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