Economy

IAS Parliament 6 years

KEY POINTS

IL&FS crisis

IL&FS group of companies has a total consolidated debt of Rs 900 billion and it started to miss deadlines on its debt obligations.
The company also has Rs.35 billion worth repayments scheduled for this year while it has less than Rs.2 billion worth of resources for the payment.
The crisis at IL&FS surfaced when it defaulted on payment obligations, which followed by downgrades by credit rating agencies (CRAs).
The major reason for the default was the problem in mismatch of assets and liabilities (ALM).

Strengthening the framework

· Entry level threshold – Given the growing size and dominance of the NBFC sector, it is important that the threshold capital levels for entry be substantially increased.

· Checks & Balances – While RBI has identified systemically important NBFCs, it needs to step up the monitoring of NBFCs which belong to large, diversified groups.

· When there are multiple entities, the ability to shift assets from one balance sheet to another increases, leading to opaqueness in determining the actual quality of the asset.

· Checks and balances are needed to ensure that risks do not build up in the sector due to structures which are too-complex-to-manage.

· Implement key recommendations – RBI could consider re-visiting some of the unimplemented recommendations of Usha Thorat committee which includes introduction of liquidity coverage ratio for NBFCs, etc.