Govt steps to stabilise IL&FS, RBI assures nation

Mumbai: The Reserve Bank Friday welcomed the government intervention in the IL&FS crisis as a "timely move" which has "helped stabilise the situation" at the infra lender, and offered full help to the new management.

The regulator is also looking at strengthening the guidelines to avoid situations of asset liability mismatches by non-bank lenders, especially infrastructure financing NBFCs dependent on short term liabilities like commercial papers.

"The well structured institutional measures taken by the government in the IL&FS case have been timely and appropriate. These have helped stabilise the situation and RBI will engage with the new management if necessary on assistance on its efforts going forward," Governor Urjit Patel told reporters at the customary post-policy interaction.

In a surprise move, government took control of the crippled IL&FS group whose 358 subsidiaries owe more than Rs 91,000 crore banks and other lenders, and appointed a new six-member board under banker Uday Kotak.

The comments came a day after the new board met for the first time and underlined the difficulties that lie ahead as the size and the liabilities of the infra lending and engineering major has more than doubled.

Asserting that the NBFC sector is "overall quite strong", deputy governor NS Vishwanathan hinted at additional efforts to ensure they do not have to undergo asset liability mismatches (ALM) in the future.

"We are looking at strengthening...there is an ALM guideline for them, but we are looking at strengthening them so that we can avoid rollover risks going forward," he said.

Vishwanathan explained that in the past two years, there has been a rapid increase in the number of NBFCs and their asset growth and these have been depending on diverse sources for their resources, including the short-term commercial papers which expose them to ALM issues, especially the infra-focused ones.

He acknowledged that there is an "anxiety" on the sector but said the central bank is "closely monitoring" developments in the sector.

Vishwanathan said RBI's regulatory and supervisory framework hinges on three principles of protection of depositors' interest, healthy customer interface and avoiding systemic risks. Stating that the NBFCs play a critical role in the economy, he said the overall capital buffers for them also stand at a strong 15 per cent.

In the recent past, the RBI has been harmonising the regulatory and supervisory practices at NBFCs to get them at par with banks, he said, adding a few non-functional companies have also been weeded out.

"Isolated events should not be seen as having system wide implications," Vishwanathan said.