Housing finance companies (HFCs) have taken just Rs 12,000 crore-Rs 14,000 crore from National Housing Bank (NHB) so far this fiscal (July 2018-June 2019) even though the regulator has sanctioned over Rs 23,000 crore, sources told FE. The low offtake against the sanctioned amount indicates that the liquidity situation might not have been as grave as feared, at least in the HFC sector of the non-banking lending space, after the crisis at IL&FS flared up in late September.
The detailed data, however, are not publicly available yet. In an email reply to FE, NHB said its sanction/disbursement data for 2018-19 would be compiled only at the end of the year, while those for 2016-17 and 2017-18 were under compilation. Liquidity was one of the important issues between the Reserve Bank of India (RBI) under then governor Urjit Patel and the government. In a meeting of the Financial Stability and Development Council on October 30, the RBI asserted that there was no systemic liquidity crunch at the broader NBFC level (it had even cited much higher headline growth in credit to NBFCs in recent months to buttress its point).
In the same meeting the finance ministry had felt (based on its interactions with some non-bank lenders) that any such concern needed to be urgently addressed to avoid spillover risks of the IL&FS default. The government later said the issue might not have been one of solvency but liquidity crunch that persisted among some lenders even after a few steps taken by the RBI. However, one of the sources said, the fact that HFCs require board approvals to seek release of funds from NHB once it’s sanctioned may have contributed to the delay in disbursement. Some HFCs tend to seek disbursement from the NHB only closer to the date of repayment of their borrowing to avoid paying more interest to their refinancer.
The NHB had in October hiked its 2018-19 refinance limit for HFCs by 25% to Rs 30,000 crore, in a bid to calm the nervous markets about potential risks of the IL&FS crisis. The RBI, too, eased the ceiling for lending to a single NBFC until end-December, which was expected to facilitate additional lending of Rs 59,000 crore to NBFCs. It also allowed banks to offer partial credit enhancement to bonds issued by NBFCs and HFCs, aimed at helping these firms raise resources from the market at lower rates.
In a recent interview to FE, economic affairs secretary Subhash Chandra Garg had said while the fear of some NBFCs not being able to roll over borrowings was not such an issue any more, it was worrying that NBFCs weren’t able to grow at the pace they were earlier since they had accounted for a large share of incremental credit (and captured the lending space ceded by stressed state-run banks). The new RBI governor Shaktikanta Das has said he would consult stakeholders to gauge the liquidity situation.
Since the business model of NBFCs/HFCs heavily relies on borrowing from banks and mutual funds to finance their loans, the IL&FS default–which led to the sale of debt and redemption in mutual funds with outflows in excess of Rs 2 lakh crore in September–caused the source of funding of NBFCs to dry up, leading to fears of liquidity crunch. The finance ministry had in late October written to the ministry of corporate affairs, suggesting that Rs 2 lakh crore of debt of NBFCs, including housing finance companies, was due for redemption or rollover by December. Additional commercial paper and non-convertible debentures worth Rs 2.7 lakh crore would be due for redemption in the last quarter of this fiscal, which could raise their need for financing, it had said.
Credit to NBFCs jumped as much as 55.6% up to October 26 from a year earlier, while the overall non-food loans grew just 13.4%, showed the RBI data. Higher credit might have also contributed to the easing liquidity crisis at the systemic level, although a few segments of NBFCs may still be facing a greater level of cash crunch than others, said another source.