Prescribe asset-liability ratio norms for NBFCs: Jaspal Bindra, Centrum

Jaspal Bindra, former Asia Pacific CEO of Standard Chartered and now the executive chairman of Centrum Group, said the regulator should prescribe asset-liability ratio guidelines for NBFC lenders to avoid recurrence of the current debt-market turmoil. NBFCs should reduce their reliance on commercial papers and short-term instruments. Over the next two quarters, capital raising would be expensive and the increased cost will be passed on to the borrower, resulting in slow to flat growth, Bindra tells Saikat Das.

Edited excerpts:

Are NBFCs headed into a tougher operating environment?

NBFCs that are well managed, focused and have robust risk management process will continue to do well. They play a pivotal role in the economic growth. Besides microfinance institutions, they finance assets such as two-wheelers, tractors, commercial vehicles. The demand for which will continue to grow.

However, over the next two quarters, capital raising will become expensive and the increased cost will be passed on to the borrower, resulting in slow-to-flat growth for NBFCs.


Do you hold only IL&FS responsible for the latest NBFC crisis?

No. IL&FS did limited third-party lending. However, its default brought forth a larger problem of asset-liability mismatch. This is prevalent across many NBFCs and housing finance companies as they use short-term capital to finance long- term assets. It is difficult to draw out an appropriate asset-liability mix as borrowings vary from sources of funding, nature of products, tenure of loans. In an event of a default like IL&FS, lenders to NBFCs get cautious, reduce their exposure and, hence, there is a slowdown.

What needs to be done to regain investor confidence in NBFCs?

There should be some guidelines set by the regulators on appropriate asset-liability ratio (ALM). Moreover, NBFCs need a line of liquidity. Unlike commercial banks that can approach the central bank for liquidity under various schemes or pledge their government bonds, NBFCs need a window to either re-finance their assets or have short-term accommodation against their illiquid assets.

What should be the ideal sources of funding for NBFCs to match their assets?

NBFCs need to reduce their reliance on commercial papers as they are short-tenor and significantly expensive. A route currently prevalent in priority sector lending is securitisation or taking leverage on receivables. This, if implemented, could help in acquiring capital at a reasonable price. Alternatively, capital markets and banks are always a dependable source.

Where do you see the Centrum Group in the current circumstances?

We currently have minimal shortterm borrowings. Our outstandings payable by March 31, 2019 are below ₹50 crore. Less than half of our lending book is bank financed. Our recent acquisition of L&T Finance’s supply chain finance business is fully financed and accounted for. We have diversified our revenue streams to build in a balanced mix of fee-based income and interest income from our lending businesses.

This way, the business has sufficient interdependence to succeed across economic cycles.

Since you took over, what are your business additions to the Centrum Group?

Centrum predominately followed a fee-based model with operations in investment banking, wealth management, stock broking and money exchange. After my joining, we have diversified into the lending businesses of housing finance, SME finance and microfinance. We also received a direct insurance broking licence and offer services from life, general, and health insurers.

We launched our maiden PE fund and will soon launch a new structured credit fund under the AIF route. We have also started a real estate management and advisory platform. We recently divested our money exchange business.

Will a falling rupee have a debilitating effect on India’s economy?

Economic growth is a combination of multiple factors such as GDP, inflation, CAD, political factors, oil prices, and interest rates. Falling rupee is a contributor, but not the only determinant. India is a net importer; hence it could have some short-term impact on economic growth. However, export sectors such as pharma and IT will do well.

Also, with the upcoming festive season, sectors such as FMCG, consumer durables look positive due to strong domestic demand. A favourable monsoon too has reduced growth concerns.

Is India slipping into a recession in dollar terms?

It is too premature to forecast a recession for India; particularly due to the upcoming state and general elections, one can predict high consumption spending. A lot will also depend on the government’s reaction to the current market situation.

Given the on-going trade war, will the world face a recession?

Global economic growth will definitely slow down. However, it may be marginally positive for India, assuming there are no sanctions imposed on us. Chinese products will become more expensive and people may look for cheaper alternatives that are available in India. Also, Chinese companies could consider manufacturing and exporting from India.