MUMBAI: Failure of the largest of the non-banking finance companies (NBFC) or housing finance companies (HFC) can be as damaging as that of big banks, stressing the need for greater surveillance over them, said the 19th Financial Stability Report by the RBI.
The report said the recent developments in the sector has brought greater market discipline as better performing companies continued to raise funds while those with asset quality concerns were subject to higher borrowing costs.
“The liquidity stress in NBFCs reflected in the third quarter of the last financial year (September-December 2018) was due to an increase in funding costs as also difficulties in market access in some cases,” the report said. Borrowings from banks, which is the major funding source for non-banks, showed an increase to 29.2 per cent in March 2019 from 23.6 per cent in March 2018. However, banks cut their exposure to NBFC CPs post IL&FS episode.
Data shows NBFC dependence on bank funds increased even as their dependence on debentures declined from 50.2 per cent in March 2017 to 41.5 per cent in March 2019.