Second term for NDA will resolve NBFCs’ liquidity woes: IIFL chairman Nirmal Jain

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Mumbai | May 06, 2019 6:37 PM

Banks are still weary of lending to the sector. Liquidity constraints of NBFCs has affected their growth and some are facing rating downgrades due to cash issues.

IIFL chairman Nirmal Jain

Leading financial services player IIFL Monday said if the BJP-led National Democratic Alliance (NDA) gets a second term, it will provide liquidity support to non-banking financial companies (NBFCs) that are facing cash crunch for a year now. The seven-phase elections for the 17th Lok Sabha is underway and will be completed by May 19 and the result will be out May 23.

Pollsters are expecting a close call this time with some predicting a second term for Modi but with a larger coalition say. “If the present government gets a second term, it will ensure better liquidity for NBFCs. There were informal discussions to this end already and they said after the elections, RBI and government will sit down and make sure the liquidity problem is resolved,” IIFL chairman Nirmal Jain told reporters at a company event.

Notably, BJP general secretary Ram Madhav has reportedly said the party may require more allies to form the next government, in a first official indication of the BJP falling short of a clear majority in the ongoing polls. The crisis in the NBFC sector started with a series of defaults by IL&FS, which owes over Rs 99,350 crore to banks, from last September. This had a cascading effect on the market and many NBFCs have since been finding it difficult to raise funds.

Banks are still weary of lending to the sector. Liquidity constraints of NBFCs has affected their growth and some are facing rating downgrades due to cash issues.

Recently, two arms of the Anil Ambani-led Reliance CapitalReliance Home Finance and Reliance Commercial Finance–were junked by Care Ratings. Post-IL&FS crisis, the Reserve Bank has been infusing liquidity through more open market operations purchases and lately through dollar auctions but has not helped NBFCs much. Jain said there is no problem of solvency but an issue of liquidity, and government is committed is resolving it.

Ruling out any bailout, he said, “while bailout is for people who have gone bust, liquidity is for people who are solvent but need some more cash.” He, however, does not see any systemic risk currently due to the liquidity crisis in NBFC sector. Jain said IILF has comfortable liquidity, cost of borrowing has gone up by around 40-50 basis points since the last six months. “We are comfortably placed. Liquidity is not a concern for us but our cost of funds is high at 9 per cent.

Meanwhile, IIFL launched a product called advisor anytime anywhere for independent financial advisors which offers them a tablet with a preloaded software giving real-time access to stock markets, mutual funds, news, views, to financial advisors. The tablet comes with a security deposit of Rs 25,000 which is refundable after three months and will allow business partners to sell mutual funds, health insurance, fixed deposits, IPOs, NPS and market products like AIFs, PMS, life insurance, Jain said. He also said they invested Rs 100 crore in this product and hope to sell 1 lakh tablets in a year.

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