Home / Industry / Banking /  Government has assured it will ease NBFC liquidity norms if re-elected, says IIFL founder Nirmal Jain

The government has assured non-banking financial companies (NBFCs) that if it retains power in the ongoing parliamentary elections, it will ease liquidity norms for the sector, said Nirmal Jain, founder and chairman, IIFL Holdings Ltd.

Jain told reporters on Monday that this has been informally conveyed to them by the government. “If the same government comes back to power, they will ease the liquidity norms (for NBFCs). There were discussions and they informally said that after the elections, RBI and the government will sit down and make sure this problem is solved," said Jain.

He said that if the current government comes back to power, it will manage liquidity and make sure things do not worsen. Jain also said that everyone is waiting for the election results to see which political party forms the government and who the new finance minister is.

The Bharatiya Janata Party-led (BJP) government is seeking a re-election to India’s Parliament, where it currently is the single largest political party. The general elections began on 11 April and will end on 19 May, with results to be declared on 23 May.

“It is not a problem of solvency, but a problem of liquidity," said Jain, adding that IIFL’s cost of borrowing has gone up around 40-50 basis points in the last six months. “The last one month has again been tight."

According to him, it has become difficult for an NBFC to raise money by way of issuing commercial paper (CP) to mutual funds. “Retail NBFCs are better placed as they can sell their assets to banks and they have access to liquidity from the banking system," said Jain.

However, he does not see a systemic risk at this point in time from the ongoing spate of NBFC rating downgrades. “There is a risk but it is not imminent. In a large economy, some groups will always go up and down," he said, adding that while in September and October last year, things were looking very scary, they are now better.

Mint reported on 4 May that the last few weeks have seen rating agencies revise credit ratings of certain debt instruments of Reliance Capital firms Reliance Commercial Finance (RCFL) and Reliance Home Finance (RHFL) to “default", or D, on account of the deteriorating financial profile of its parent. On 2 May, more downward revisions followed, with CARE Ratings placing PNB Housing Finance Ltd (PNBHFL) on a rating watch with developing implications due to its requirement for raising money to maintain comfortable capital adequacy and gearing level. Besides, the Insurance Regulatory and Development Authority (IRDAI) on Friday said insurers with exposure to RCFL and RHFL will have to make provisions for debt following the downgrade.

Earlier last year, following a series of defaults by Infrastructure Leasing and Financial Services Ltd (IL&FS), mutual funds with exposure to debt paper of the company had to write off a chunk of their holdings. This, and the ensuing defaults by some non-banking financial companies (NBFCs), had led to the liquidity crisis.


Shayan Ghosh

Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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