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NBFCs should look at selling their portfolios to create liquidity, says Kotak Mahindra Bank

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Last two weeks have been tough for non-banking financial companies (NBFCs) and housing finance companies (HFCs) as most of them are facing liquidity crunch. KVS Manian, president-corporate, institutional & investment banking at Kotak Mahindra Bank, spoke to CNBC-TV18 about the current crisis in the sector.

Last two weeks have been tough for non-banking financial companies (NBFCs) and housing finance companies (HFCs) as most of them are facing liquidity crunch.
Despite the Reserve Bank of India's (RBI) measures to ease their woes, concerns still remain. KVS Manian, president-corporate, institutional & investment banking at Kotak Mahindra Bank, spoke to CNBC-TV18 about the current crisis in the sector.
“Most people who have seen the earlier NBFC crisis to now, I would like to draw some differences between the two. The key differences between the two are – first, at that time many NBFCs were far less capitalised than they are today. I think the capital adequacy levels are much better today. Second, I think at that time far more NBFCs were reliant on public deposits, today most of the NBFCs are largely on the wholesale deposits. There are a few public deposit taking institutions but largely they are more wholesale funded. Third, I think the asset side of most of the NBFCs, large part of them is retail and retail credit has been quite robust.," he said.
Talking about the credit quality, Manian said, "The credit quality has been quite robust. So I would like to believe that the credit quality on their asset side is fairly good. Therefore, I don’t see this situation as a solvency issue unlike the last time but last time there were solvency issues with the sector. I think that is not the case this time. I think they are reasonably solvent. There is a liquidity issue, I think the ALM and funding mismatches are causing liquidity issues. Liquidity issues are more easily solvable than fundamentally solvency issues."
“I am more optimistic that with various measures announcements by several banks that they will buy portfolios, Reserve Bank of India (RBI) announcing some benefits to banks who take on NBFC lending, some of these measures incrementally each of them helps. On a medium-term basis, there is need to look at the ALM regulations for this sector,” he added.
With regards to the possible solutions to the current liquidity stress in the system, Manian said, “Many banks are trying to buy out portfolios. So one of the solutions that NBFCs have in this situation is where they can sell their portfolio and create liquidity instead of keeping them on their balance sheet and funding them on their balance sheet. So I think it is a good solution for many NBFCs in this current situation and many banks including us will look for this opportunity. I think it is a win-win kind of an opportunity."
 
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