NBFC sector does not need immediate intervention: Deputy Governor Acharya

Last Updated: Wed, Dec 05, 2018 19:08 hrs

The Reserve Bank's Deputy Governor Viral Acharya on Wednesday stated that it would be premature for the Reserve Bank to lend money into the NBFC sector. According to him market conditions in the NBFC sector did not warrant an extreme measure.

Acharya was speaking at a post-MPC (Monetary Policy Committee) press conference and referred to the crisis in the NBFC sector post the IL&FS fiasco. "The RBI also stands ready to be the lender of last resort but that is provided conditions warrant that sort of an extreme measure. In our assessment, there is no such necessity at the present," he was quoted as saying in reports.

Acharya said the "sound health" of the economy, where the credit growth is comfortably above the nominal GDP growth with a fair distribution across sectors, make the RBI confident that such support will not be required. The RBI has also augmented system-wide liquidity through various moves, he said.

Acharya said the RBI has been watching developments on this front since late-August and has also been in touch with Sebi to understand the potential redemptions. It can be noted that the IL&FS crisis burst out in late August, and the worries quickly spread to other NBFCs and the possible asset liability mismatches that they may face, which had made investors cagey.

"RBI has also taken measures to facilitate asset and risk transfers within the financial system. This can be considered as reintermediation across financial players or risks. We believe this is healthy for financial stability overall," he said.

"Our assessment is that these measures have collectively eased the funding stress in a steady manner over the past two months. They have given the NBFCs and HFCs time and the opportunity to make their own balance sheet adjustments on both assets and liabilities side," he said. His comment was made in reference to measures such as partial credit enhancement to aid bond raising by NBFCs.

With Agency Inputs