INTERVIEW – Part-II: Das says RBI ready for more support to NBFCs

Cogencis, Monday, Apr 27

(This is Part-II of exclusive interview of RBI Governor Shaktikanta Das by Cogencis. Find the link for Part-I of the interview at the end of this story. Part-I deals with the governor's comments on fiscal deficit, monetisation, and repo rate)

By T. Bijoy Idicheriah and Kalyan Ram

MUMBAI – The Reserve Bank of India is ready to take more measures to improve flow of credit to small non-bank finance companies and microfinance institutions, Governor Shaktikanta Das said in exclusive interview to Cogencis.

The challenge of ensuring flows to the mid- and small-sized NBFCs and microfinance institutions is still there, the governor said.

"That is an issue that is very much on our table. We will take further measures as necessary to address that challenge," Das said in the interview, his first media interaction since the nationwide lockdown to combat COVID-19 began on Mar 25.

"The RBI remains in battle-ready mode," the governor said.

The RBI has been trying to ensure flow of liquidity from banks to non-bank lenders by conducting long-term repo operations and targeted long-term repo operations.

Both these liquidity windows were heavily subscribed by banks, which parked the money either in sovereign bonds or in papers issued by public sector entities or top-rated companies and non-bank lenders.

The RBI then fine-tuned the targeted long-term repo operations and announced TLTRO 2.0 aimed at directing funds to NBFCs through banks.

However, the first 'TLTRO 2.0' saw demand for just about half of 250 bln rupees on offer.

RBI was aware that the demand may not be as good as other repo operations, despite some additional incentives, Das said. "We had a sense that the response may not be as good as TLTRO despite the additional incentives such as exemption from being reckoned as adjusted net bank credit."

"The auction results convey a telling message, which is that the banks are not willing to take on credit risk in their balance sheets beyond a point. We are reviewing the whole situation and based on that, we would decide on our approach."

Das said the RBI was reviewing the TLTRO 2.0 but he was non-committal on whether this would mean that the central bank would choose long-term repo operations over targeted long-term repo operations.


Risk aversion to smaller non-bank lenders has made banks drag their feet on offering the three-month moratorium for all instalment payments, as announced by the RBI on Mar 27.

Das made it clear that the Mar 27 circular allows banks to offer the three-month moratorium relief to all loans, based on their own assessment.

The RBI circular had said lending institutions are permitted to grant a moratorium of three months on payment of all instalments, and the banks can frame board-approved polices for providing the relief, according to Das.

"What is meant by this is that each bank has to assess its own liquidity position, capital adequacy and its own financials. The banks have to take a considered call taking into account these factors. So far as the RBI is concerned, there is sufficient clarity," Das said.

Though non-bank finance companies and microfinance institutions are offering the loan moratorium to their customers, bankers are not offering the same leeway on loans extended to NBFCs or microfinance institutions.

Cogencis had reported last week that the RBI was puzzled by the decision of banks to involve the Indian Banks' Association on the issue of extending moratorium on loans to non-bank finance companies as its circular was clear that the hold on repayment extends to all term loans.

Non-bank finance companies are facing an asset-liability management problem. They are struggling to generate liquidity as they have to offer the moratorium on payments to their borrowers, while they have to continue servicing the loans they have taken from banks.

"So far as implementation is concerned, each bank has to take into account these factors and then grant moratorium," the governor said.


The RBI governor felt Indian banks are healthy and safe based on the banks' current capital adequacy ratio and non-performing asset ratios.

In a bid to ensure banks conserve capital, the RBI had recently barred, as a temporary measure, them from paying dividends at least till Sep 30. It had also deferred the last tranche of capital conservation buffer for banks.

The RBI took a calibrated call and allowed banks a standstill on non-performing asset recognition, but also sought 10% additional provisions to protect the bank balance sheets in future, he said.

"We are constantly monitoring the sector. Going forward, whatever measures are required, we would mandate that," the governor said.

On recent issues with banks, including the moratorium on Punjab and Maharashtra Co-operative Bank and YES Bank, Das said the RBI strengthened its supervisory systems and mechanisms as part of a more proactive approach.

"We are doing a much more granular, deep-dive into financial institutions where we see some signs of vulnerability," Das said. "This is much deeper than it was done ever before."

"We have improved and sharpened our supervisory systems and methods. It's a very proactive system. At the same time, we have mandated additional regulatory guidelines for NBFCs and Urban Co-operative Banks regulated by the RBI."

Asked if this would lead RBI to limit deposit-taking only to banks, the governor said there was no such plan at this point.

He also said the central bank was looking at harmonising norms on banking licences given under different regimes.

Based on when they were licensed, banks have different rules on holding structure, non-bank lending companies within the group, and on holding by promoters and voting rights.

On the issue of the bankers not taking credit decisions fearing scrutiny by investigative agencies, Das said this had been a problem but he hoped a new advisory committee would help "alleviate the situation".

The Advisory Board for Banking and Financial Frauds is a five-member committee formed by Central Vigilance Commission, and the government has notified guidelines so that before any matter is referred to the Central Bureau of Investigation or any other agency, this panel will study it. The committee will look to understand whether there has been any wrongdoing or malfeasance, or whether it's a case of business failure or a business decision gone wrong.

If it is indeed a case of business failure, then there is adequate protection built in, as the committee will then not let these cases get referred to investigative agencies, Das said.


The governor did not agree to the contention that the RBI no longer enjoyed the special status in the eyes of courts as it used to earlier.

Some recent judgments like the one in the Feb 12 stressed asset norms case or the challenge to the crypto-currency one had not gone in favour of the central bank.

Das countered this view by pointing out that while judicial matters are a prerogative of the courts, in many cases, the same court or a higher one has amended or issued a more favourable judgment for the RBI on appeal.

"In the crypto-currency case, while having an issue with the principle of proportionality, the Supreme Court has clearly observed that RBI is not just another regulator. I think that position has been made clear by the Supreme Court itself," Das said.

The RBI also bounced back from the court ruling against the mandatory clauses under the Feb 12, 2018 circular on stressed assets by coming up with a revised circular on Jun 7, 2019.


Das said he believed there was space to leverage on the strides made in the payments services space for India to emerge as an innovator at the global stage.

The 'fintech' space and its potential to create societal change through innovation is a topic close to Das' heart, as he has mentioned it in almost every speech since taking charge at RBI in December 2018.

"With regard to the payments space, India is an innovator and a pioneer. The Unified Payments Interface is being internationally commended. The Bank for International Settlements has come up with a paper on what all UPI has achieved," he said.

Based on the RBI's advice, National Payments Corp of India–the organisation behind UPI and RuPay–has set up a subsidiary to take both products global.

Das also sees an opportunity to turn the Unified Payments Interface model into a vehicle on which cross-border money transfer and remittances can take place.

He expects the RBI's Fintech department to also push initiatives such as the regulatory sandbox, which will allow such companies to test out innovations in a pilot or in near real-world environment.

"We want to see fintech activity flourish in a calibrated and orderly manner. We want to see that credit flow also happens through new methods using fintech and through fintech companies. This new department will provide the required thrust in that area," he said.  End

Edited by Ranjana Chauhan

Part-I of the interview published earlier today:

INTERVIEW: Das says RBI hasn’t taken a view yet on monetising deficit

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