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Nbfc Finance of Sidbi

Essay by   •  June 11, 2019  •  Case Study  •  388 Words (2 Pages)  •  540 Views

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SIDBI is a refinancer to the NBFCs and hence, it is under their surveillance that the NBFCs finance the business of lending. After the major default of IL&FS, there came a platform of introspection which lead the banks to believe that the default could have been ignored, if we could have an “reliable” instrument, rather than the external rating agencies which has too frequent a fluctuation.

Thus, came into existence the concept of ALM, which is a reliable non-fluctuating analysis enabling a refinancer to understand the positing of the NBFC, before deciding to lend them. Further, RBI made it a part of the regulations, and NBFCs are under the compulsion has to submit their ALMs to their respective refinancers.

However, it is also under the regulations of RBI that the cumulative gap up till one year time bucket should not exceed 15% of cumulative cashflow.

SIDBI has a 28 NBFCs that it refinances, among which 3 of them, namely Indostar, Religare and ECL Finance seemed to have mismatched cumulative gap up to one year, though on analysation these seem to be well between the threshold limit provided. Moreover, the concern is a long term aspect, thus not only are we concerned of the mismatches in different time periods up till one year, but more on the NBFCs with any sort of mismatches up till one year so that they could be asked for clarifications and further procedure they wish to follow to overcome the same. This is to ensure smooth functioning of the credit business with efforts being made to eliminate a maximum number of NPAs.

On analysing the other 17 NBFCs’ ALM, I concluded that the industry as a whole has been doing significantly bad. One of the NBFCs’ manely, Reliance Commercial Finance Ltd have their external rating dropped, while L & T Ltd. faces an exposure of Rs. 1800 cr. insolvency.

 Shriram City Union Finance Ltd. , Shriram Transport Finance Co. Ltd. , SREI Equipment Finance Ltd and TATA Motors Finance Ltd. has issued commercial papers several times in the past few months, 12 times in 4 months, 9 times in 2 months and 17 times in the past 4 months, respectively. However, none were redeemed previously, in the time period, which signifies that there isn’t a positive outlook towards investments on the same.  



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