RBI seeks info from NBFCs on a moratorium on borrowers
The Reserve Bank of India has asked non-banking financial companies (NBFCs) to disclose the grace period given to borrowers. Besides mutual funds, NBFCs are large lenders of shares also- they fund promoters to diversify and raise their stake. Around 11,000 or more NBFCs are there out of which 218 are systematically very important, which has a total asset of Rs 25 lakh crore.
According to a recent report from the regulator, it assumes the significance with the promoter of a large corporate house cutting a deal with MF managers to buy time, and another corporate house moving court against the lenders who sold pledged shares to cut loose. According to ET, the Mutual Funds are not within the jurisdictions of RBI ’s, but the deal between the funds and the promoter concerned has not been good with the regulators.
If the borrowers pledging shares to raise money fail to bring additional collateral, then the lenders must sell their stock to protect their exposure. And if the shares are not sold, then the credit rating agencies must downgrade the instruments which were issued to borrowers to raise their funds; and if none of these happens then the product of ‘loan against shares ‘ comes under question.RBI is closely monitoring the developments relating to share which were pledged by the borrowers.
High-risk weight on loan requires Bank or NBFC to earmark more capital for such an asset.