India’s third largest bank by loan size Bank of BarodaNSE -0.41 % has taken the lead to monitor the entire NBFC loan portfolio on behalf of all lenders, three people familiar with the development said. It includes marquee names like Bajaj Finance, Tata Capital, HDB Financial Services, Tata Motors Finance, M&M Finance, KKR India, Indiabulls Commercial Credit including 33 non-bank lenders having an exposure of Rs. 4 lakh crore to the banking system.
Monitoring agencies would be assessing the asset quality, cash holdings, likely siphoning off of funds if any, flag non-business transactions among a host of others requirements. “Bankers are worried over the performance of the NBFC credit, so they want an assessment of the actual credit quality of their books and the potential stress build up that could happen,” said a banker privy to the matter. “A tender document have been sent to agencies working in this space, and appointments will be made soon.
As per the document shared by Bank of Baroda with the specialised monitory agencies, empaneled with the bankers lobby IBA, the scope of work will include assessing the quality of the loan book, further drawing power, end use of funds borrowed, outstanding contingent liabilities, unhedged forex exposure and fraudulent practices of any. These agencies will also assess the present cash flow and its adequacy to conduct business. “As businesses continue to be disrupted owing to COVID-19, the monitoring of NBFCs via ASMs would have to be suitably hinged on comprehensive inflow and outflow monitoring of cash flows and operating expenses, to specially analyse group companies/inter-corporate transactions and related party transactions,” said
Ashwin Kumar, Managing Director – Financial Services, FTI Consulting. “Monitoring should focus on asset liability management that looks at internal controls/provisions with regards to the monitoring of NPAs, liquidity issues and quality of fresh assets.“
From the non-bank lenders which are being assessed Bajaj Finance and Bajaj Housing Finance have the maximum exposure totalling to Rs 1.05 lakh crore, followed by HDB Financial Services at Rs 47,161 crore. The Tata group companies Tata Capital Financial Services, Tata Motors Finance and Tata Capital Housing Finance have a combined exposure of Rs 71,000 crore. Among the other large exposures that are being assessed, Aditya Birla Finance and Aditya Birla Housing Finance have loans amounting to over Rs 32,000 crore, Fullerton India Credit and Fullerton India Home Finance have outstanding loans of Rs 24,500 crore, Muthoot Finance and it’s Housing arm with loans of nearly Rs 18,000 crore and M&M Finance plus it’s rural housing arm with loans of nearly Rs 24,000 crore.
People in the know said that the coronavirus outbreak, policy changes surrounding moratorium and the complete halt on new bankruptcy cases for year has left little visibility on the health of the business, forcing them to conduct such audits.
“At a time, 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,” said Jeenendra Bhandari, partner, MGB & Co LLP, a IBA empanelled ASM firm which has been doing similar audits for private equity funds and lenders.
“This is because no one likes surprises and if any corrective action has to be taken or misuse of funds or leakages identified by the auditors, the lenders will get to know well in advance before it becomes a bigger problem or NPA.”