INSUBCONTINENT EXCLUSIVE:
Finance Ministry may ask RBI to put strong regulatory framework for NBFCs.The Finance Ministry may ask the Reserve Bank of India (RBI) to
put strong regulatory framework around non-banking finance companies (NBFC) accessing non-bank public deposits, like pension and provident
fund, as these are savings of the salaried class and must be kept away from avoidable risks.Faced with liquidity crunch after ILFS default
and with rising number of defaults, the shadow bankers are seeking a bailout in the form of a separate liquidity window
But any decision on this would require detailed discussions, sources said.According to Finance Ministry sources, though non-banking
financial companies (NBFCs) are major finance providers, they are at present in deficit
"Their sources of funds are the market, not public
There has to be greater granularity in their liquidity requirements vis-a-vis the assets and liabilities, and the RBI will look into
that."Remarking that there are asset-liability mismatches in some cases, sources said, "only the infrastructure-funding NBFCs need a
Public deposit is not the option, in case of such NBFCs."According to another source, retirement and insurance funds are hard-earned money
of the middle class saved for twilight years and emergencies
"Such savings should not be invested in markets, where the risks are unseen and sudden and the hope for higher returns may sometimes result
in exemplary losses, as seen in the case of ILFS, where after losing money the middle class investors looked up to the government for
recovery."Even the Employees Provident Fund Organisation (EPFO), sources said, could pull back from NBFC investments to avoid default
risks.The EPFO's Finance, Investment and Audit Committee (FIAC), at its meeting earlier this month, "alerted by the downgrading of certain
NBFCs sought steps to avoid default and loss of money" to ensure safety of workers' retirement savings.Following this, the Finance Ministry
is monitoring the EPFO and what it plans to do with investments in troubled NBFCs, such as Dewan Housing Finance Limited (DHFL).Earlier this
month, CARE Ratings downgraded the DHFL borrowings, which included long-term bank facilities, a fixed deposit programme, perpetual debt,
subordinated debt and non-convertible debentures (NCDs)
DHFL is a housing finance company worth Rs 1.13 lakh crore.The CARE action came just three days after rating agency Crisil downgraded DHFL's
commercial papers worth Rs 850 crore.Last year, the NBFCs had petitioned the Prime Minister saying 's ystemically important' NBFCs should
be allowed to access public deposits and even demanded a separate RBI credit line.But it would not be easy for the RBI to tighten or close a
key source of funding -- comprising insurance, provident and pension funds -- for a sector already facing fund crunch to avoid future
default risks.At best, it can ask managers of such public funds to seek early re-payment from troubled NBFCs.Mutual funds are another source
of NBFC funding, but they are pure market instruments
Though insurance regulator IRDAI has not yet sought details of insurance companies' exposure to DHFL, insurers have slowed investments in
NBFCs.Most insurers have become cautious about buying NBFC securities on concerns of asset-liability mismatch, after trouble arose at ILFS
The insurers feel the money invested belonged to policyholders and returns on it may become difficult if the company defaulted.The IRDAI has
asked insurers for details of their exposure to ILFS and has said they will have to make provisions for it as it cannot be written off.IRDAI
Chairman Subhash Chandra Khuntia said insurers should not concentrate risks in a few entities and must diversify investments
But insurers and pension and provident managers say there is a dearth of good investment opportunities, which leads them to NBFC
investment.The RBI, when it starts looking into the process of creating a separate liquidity window, may seek views from insurance
regulators as well as pension fund regulator PFRDA, sources said.Election Results for Lok Sabha Election 2019 will be out on May 23
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