scorecardresearchNBFC loans against shares come under RBI scanner: Report

NBFC loans against shares come under RBI scanner: Report

Updated: 28 Feb 2023, 12:24 PM IST
TL;DR.
The RBI has sought details of lending against shares and the largest credit exposures of NBFCs, said the report.
 High level of pledging by promoters is seen as a warning signal.

High level of pledging by promoters is seen as a warning signal.

The Reserve Bank of India (RBI) has sought details of lending against shares and the largest credit exposures of non-banking financial companies (NBFCs), reported market daily Business Standard.

The central bank’s Department of Supervision sought this information over the past week, and the deadline for submission of large exposure was on Monday, a source informed BS.

The RBI’s communiqué has been accessed by Business Standard.

On lending against shares, the RBI said this would cover those accepted as collateral or part of capital-market operations; transfer of shares by obtaining a power of attorney on dematerialised accounts of borrowers; or by any other means, noted BS.

On credit exposures, the details sought are along the following lines: NBFCs’ 10 largest exposures — whether they be single or connected; exposures with a value equal to or above 10 percent, or tier I capital; other exposures with a value at 10 percent of tier I capital; and exempted exposures with a value equal or above 10 percent of tier I capital, it further said.

“The information sought is aimed to get a sense of both sectoral (capital markets) and general leverage by big NBFC borrowers,” said another banker, as per the report.

The report further pointed out that the Adani episode has also brought into sharp relief over the concern flagged by the banking regulator in its Financial Stability Report of June 2019 (FSR:2019).

It had noted that the high level of pledging by promoters is seen as a warning signal, indicating the company’s poor health and probably a situation where the company is unable to access funding through other options. Further, the increased pledging activity is risky for any company as debt repayment will leave no room for the company’s growth, said the report.

BS had on October 15, 2019, reported that the promoter pledge of shareholding is set to come under closer regulatory scrutiny, and a review of the guidelines is in the offing due to risks arising from both excessive leverage and the linkages between financial intermediaries. And the RBI, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India, and the Pension Fund Regulatory and Development Authority are expected to work closely to review the regulatory framework on the subject.

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First Published: 28 Feb 2023, 12:24 PM IST