There is a turmoil in the non-banking financial companies (NBFCs) sector as inefficiencies by some large entities and credit squeeze present a perfect recipe for disaster, a senior government official has said.
In recent months, the country’s financial system has been struggling with multiple woes in the wake of the turmoil at diversified IL&FS group as well as debt defaults by some other large entities.
In an interview to PTI, Corporate Affairs Secretary Injeti Srinivas said the NBFC sector is facing issues of credit squeeze, over-leveraging and misadventures by some large entities.
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, said Srinivas.
However, he added that viable companies are managing the risk well and are not facing such a dire situation.
Srinivas also said corporate governance in India is being put to test. 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 one is responsible, one can manage the risks. There are various companies in the country that have strong corporate governance. They take risks but manage them as well. So, they don’t face such dire situation that some others are facing today, Srinivas said.
Speaking of the situation of non-performing assets (NPAs) being linked to external factors, Srinivas noted that it would not be a convincing explanation.
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 behaviour, he emphasised.
Earlier this month, former Prime Minister Manmohan Singh said the banking sector is under severe stress and the way out of the mess is to reverse some gross distortions, work closely with the RBI, re-start the process of credit delivery and ensure sufficient liquidity and cash in circulation.
The NPA scare has brought lending to a virtual halt, the former prime minister had said, adding that a one-size-fits-all approach drove companies into insolvency while demonetisation closed down all sources of informal credit.
However, Finance Minister Arun Jaitley had dismissed the concerns, saying, that when an economist turns into a politician, he loses sense of both economy and politics.
Dr Manmohan Singh left behind in 2014 an economic slowdown, policy paralysis and corruption. He brought down his party to lowest ever strength in Parliament. India was a part of the fragile five. Now, he regards the world’s fastest growing major economy as disastrous, said Jaitley.
