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Need to review funding model of big housing finance companies: Govt

It is a segmental problem and involves big entities of that segment. It is basically a segment of NBFCs, the housing finance companies, which is facing liquidity problems, says Injeti Srinivas

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Injeti Srinivas
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There is a need to review the funding model of housing finance companies that are facing liquidity crunch, Ministry of Corporate Affairs (MCA) secretary Injeti Srinivas said on Monday.

Srinivas said that though the problem was present across the housing finance sector, it is more pronounced in a few big companies.

"It is a segmental problem and involves big entities of that segment. It is basically a segment of NBFCs, the housing finance companies, which is facing liquidity problems. It is more pronounced there," he said, adding that overall easing across the sector is required.

"In medium and long term, the way you finance and expand all these will have to looked into. All entities should follow sustainable business development approach," he said.

He, however, said the government is hopeful that the liquidity problem will be addressed in the short term.

"I don't see any crisis. It will be addressed duly in the short term. At macro level, some measures have been taken. The situation should ease," he said.

Commenting on the way business is conducted in the sector, he said the companies will have to deeply introspect and adopt the model which is sustainable which takes into account sources of funds, deploy them so as to minimise this (asset-liability) mismatch.

The MCA recently submitted a report to the Department of Economic Affairs (DEA) of the finance ministry on the liquidity problem in the NBFC sector, sources said.

The government fears that the NBFC liquidity crisis may spill over to other sectors.

Infrastructure Financing and Leasing Services (IL&FS) sent shock waves through the NBFC sector when it defaulted on its debt obligations first time in September, following which the erstwhile Board was taken over by a government-appointed Board.

In fact, the problem of liquidity crunch led to confrontation between the government and the central bank.

The government feels NBFCs, including housing finance companies, are crucial to credit flow to the economy and a prolonged liquidity crisis may impact economic growth. NBFCs borrow from banks and mutual funds and lend it at higher interest rates to retail customers as well as companies. If the NBFCs are not provided liquidity support soon, it may impact consumption.

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