Chief Economic Advisor (CEA) Krishnamurthy Subramanian has said that the issue of solvency is at the core of the problems afflicting the Non-Banking Finance Company (NBFC) lenders. He also said that NBFCs, which account for a fifth of the overall lending in the economy, have been facing headwinds since late August 2018.
Subramanian has pointed out that the crux of the problem is the asset liability mismatch, where lending institutions borrowed short for creating long term assets. He also said that in recent months, many NBFCs have been forced to exit non-core businesses and sell down future receivables, taking securitisation volumes to an all-time high in fiscal year 2018-19. He noted that a slew of measures have been taken by the government and the Reserve Bank to address the troubles, which started after the crisis at infra lender IL&FS. He added that rising interest rates also accentuated the asset liability mismatch issue.
Talking about Prime Minister Narendra Modi-led government's new term, CEA said the focus should be on what he described as the '4 Ls' of Land, Labour, Lend and Law in order to take the economy to greater heights. For a market economy, he said the legal framework forms the bedrock for all the transactions and has to be made stronger.