SBI reassures NBFCs on liquidity concerns

The State Bank of India (SBI) on Sunday assured non-banking financial companies (NBFCs) that it would continue to support them with credit, seeking to calm concerns that the ongoing crisis at Infrastructure Leasing and Financial Services Ltd (IL&FS) could trigger a broader liquidity crunch.

SBI Chairman Rajnish Kumar said reports suggesting that the country's largest lender had become cautious about extending loans to NBFCs were baseless. His statement came after shares of several housing finance and non-banking financial companies came under heavy selling pressure in the stock market on Friday.

“Some comments are being attributed to the SBI about it being wary of lending to the NBFCs. The rumours are baseless,” Kumar said.

He added that SBI continued to support NBFCs in both the public and private sectors within the regulatory framework and would maintain that approach.

Kumar also sought to reassure the market about liquidity, saying there was no immediate concern over the ability of NBFCs to meet their funding requirements because of their liquid cash holdings and committed credit lines.

He pointed to another potential source of support for the sector, saying recent Reserve Bank of India guidelines on co-lending could create more opportunities for SBI to work with non-deposit-taking NBFCs. Such partnerships could help expand lending to priority sectors of the economy.

The reassurance came against the backdrop of sharp volatility in financial stocks following growing concerns over the IL&FS debt crisis. Market analysts said tighter conditions in the money market, combined with uncertainty over IL&FS's ability to meet its obligations, had triggered fears about credit risk across the NBFC sector.

Mustafa Nadeem, CEO of Epic Research, said the negative sentiment had affected several financial companies, including DHFL, Yes Bank and companies belonging to the Indiabulls group. He also pointed to IL&FS's efforts to sell financial assets to raise money for commercial paper repayments as an additional source of pressure.

The sell-off was particularly severe in Dewan Housing Finance Corporation (DHFL), whose shares lost more than 42 per cent in a single trading session on Friday. The stock closed at Rs 351.55 on the BSE, down Rs 259.05 from its previous close of Rs 610.60.

The market concerns intensified after rating agency ICRA downgraded IL&FS's ratings for its short- and long-term borrowing programmes. The downgrade followed the company's failure to meet commercial paper redemption obligations that had fallen due on September 14, 2018.

IL&FS subsequently disclosed that it had received notices relating to delays and defaults in servicing certain inter-corporate deposits.

The developments raised concerns because IL&FS sits at the centre of a large network of infrastructure and financial businesses. The company is a core investment company and holding entity for the wider IL&FS Group, with its operations spread across separate companies involved in infrastructure, finance, and social and environmental services.

The episode also highlighted the vulnerability of NBFCs to disruptions in short-term funding markets. While SBI's assurance was aimed at easing immediate concerns, investors remained focused on whether the IL&FS crisis could affect funding costs and access to credit across the wider financial sector.