India’s central bank is on high alert amid fears of a ₹8.5 billion default by housing finance major
- RBI does not regulate housing finance companies but many banks have significant exposure to them.
- RBI is closely monitoring activity and performance of NBFCs.
- RBI governor Shaktikanta Das said there will also be no ‘delay’ when it comes to taking steps.
“We (RBI) will not hesitate to take steps to ensure the financial stability is not adversely affected. If some action is required, we will take it,” said Das after multiple reporters quizzed him at the press conference, following the bi-monthly policy announcement on Thursday.
Yesterday, ratings agency ICRA downgraded Dewan Housing Finance (DHFL)’s rating on the ₹850-crore (₹ 8.5 billion) commercial paper to D. This latest development comes even as banks are still reeling after IL&FS turned insolvent last year, defaulting on its payments to banks. In this regard, RBI has initiated a special audit, last September.
Das however said that while RBI does not regulate housing finance companies but many Indian banks have significant exposure to them. “We are closely monitoring activity and performance of NBFCs. These entities are resorting to various measures to meet their liabilities and commitments,” he said.
There will also be no ‘delay’ when it comes to taking steps, Das assured while pointing out that already the monitoring period for NBFCs has truncated from 18 months earlier to 12 months, currently.
DHFL enters the default zone
Das’s comments are significant as Dewan Housing Finance (DHFL) is entering the ‘default zone’. ICRA downgraded the rating its commercial paper to D, which is the rating given to either defaulted entities or those expected to default soon. It was also removed from watch with negative implications.
“The rating revision factors in further deterioration in the company’s liquidity profile and delays in meeting scheduled debt obligation on June 04, 2019. While the mentioned debt is not rated by ICRA, given the stretched liquidity profile and limited visibility on fresh funding, company is unlikely to be able to service its debt obligation with regard to commercial paper programme in a timely manner,” the rating agency said.
This will be the second large NBFC to get into crisis mode, in the last one year. The troubles in the sector came to the fore when Infrastructure Leasing and Financial Services (IL&FS) turned insolvent and defaulted on debt obligations, sinking many banks who are its lenders, deep into crisis.
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