Bank of Baroda will monitor NBFC loan portfolio on behalf of all lenders

Third largest bank, Bank of Baroda will monitor henceforth NBFC loan portfolio on behalf of all lenders. It include the names of

  • Bajaj Finance
  • Tata Capital
  • HDB Financial Services
  • Tata Motors Finance
  • M&M Finance
  • KKR India
  • India-bulls Commercial Credit.

 

These big names are included in a group of 33 NBFCs with a total exposure of Rs. 4 lakh crore to the banking system. 

What is the purpose of the Monitoring Agencies

  • To assess the asset quality
  • To assess cash flow
  • Evaluating and monitoring on Siphoning off of Funds
  • Flagging of non-business transactions
  • Also to assess the cash flow and its adequacy to conduct business

 

The assessment of credit quality of NBFCs loan books will help bankers to build up the potential stress that could happen in near future. The monitoring of NBFCs by Agencies for Specialized Monitoring would have to be attached

  • For monitoring of cash flow
  • To analyse group companies and inter-corporate transactions.

It should also keep measures on Asset liability management of Non-Banking Financial Companies.

 

Policy changes during the coronavirus outbreak has affected the health of the business, forcing Bankers to conduct such audits. While the another reasons are moratorium and the complete stop on new bankruptcy cases for years

When the whole system is undergoing stress it becomes important for lenders to monitor utilisation of funds in borrower companies where they have an exposure

 

Monitoring agencies would be assessing the quality of assets, inflow and outflow of cash, likely siphoning off of funds if any and flag non-business transactions, among other requirements. Mumbai based Bank of Baroda has taken initiative to monitor the entire Non-Banking loan portfolio on behalf of all banks.

 

Bank of Baroda has sent the documents to monitoring agencies empanelled with the Indian Banks Association. Mr. Ashwin Kumar, managing director-financial services, FTI Consulting said that monitoring should focus :

  • Firstly, on asset liability management that looks at internal controls and provisions with regards to NPAs
  • Secondly, on liquidity issues and quality of fresh assets

 

Some of the lenders among non-banking lenders with high exposure are

  • Bajaj Finance and Bajaj Housing Finance have the maximum exposure of Rs 1.05 lakh crore. Whereas, HDB Financial Services has the maximum loans exposure of Rs 47,161 crore.
  • The cumulative exposure of Tata group companies Tata Capital Financial Services, Tata Motors Finance and Tata Capital Housing Finance is of Rs 71,000 crore.
  • Among the other large Non-Banking Financial Companies that are being assessed, Aditya Birla Finance and Aditya Birla Housing Finance have a total loans exposure of Rs 32,000 crore
  • Fullerton India Credit and Fullerton India Home Finance have outstanding loan exposure of Rs 24,500 crore
  • Muthoot Finance and it’s Housing arms are with an exposure of nearly Rs 18,000 crore
  • M&M Finance and its rural housing arms are with loans of nearly Rs 24,000 crore.

 

What is the meaning of the term NBFC

‘NBFCs’ means the Non-Banking Financial Companies registered with the Department of Non-Banking Supervision of RBI. Banking Institutions lend loans to NBFCs so that it can be further lended to borrowers. Banks may provide working capital as well as term loan to all NBFCs registered with RBI.

These NBFCs are engaged in :

  • Infrastructure financing
  • Equipment leasing
  • hire-purchase, loan
  • Factoring and investment activities.

 

There are certain NBFCs that do not require registration with RBI

  • Insurance Companies registered under the Insurance Act
  • Nidhi Companies registered under Companies Act, 1956
  • Chit Fund Companies
  • Stock Broking Companies registered under Securities Exchange Board of India
  • Housing finance Companies registered under National Housing Board

 

Here we saw that the third largest bank Bank of Baroda will monitor NBFC loan portfolio on behalf of all lenders i.e. all banking institutions.

 

 

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