Imminent crisis in NBFC sector

Date posted: Monday 13 May 2019

There is an imminent crisis in the NBFC sector. There is a credit squeeze, over-leveraging, excessive concentration, massive mismatch between assets and liabilities, coupled with some misadventures by some very large entities, which is a perfect recipe for disaster. It is a defining moment. The way things are moving, in the medium to long term it will be for the good. In the short term, there can be turbulence. If you are responsible, you manage the risks. There are many companies in the country that have strong corporate governance. They take risks but manage them as well. So, they don’t face such a dire situation that some others are facing today. To say that the situation (NPA) can be attributed entirely to external factors and business risks is not a convincing answer because there is something known as responsible behavior. Former Prime Minister Manmohan Singh said the banking sector is “under severe stress” and the way out of “this mess” is to reverse some “gross distortions”, work closely with the RBI, restart the process of credit delivery and ensure sufficient liquidity and cash in circulation.

(The Hindu)