Bank of Baroda appoints agencies to monitor Rs 4 lakh crore NBFC loan

India’s third largest bank by loan size Bank of Baroda has taken the lead in overseeing the entire NBFC loan portfolio on behalf of all lenders, said three people familiar with the development. It includes marker names such as Bajaj Finance, Tata Capital, HDB Financial Services, Tata Motors Finance, M&M Finance, KKR India, Indiabull’s Commercial Credit including 33 non-banks lenders with an exposure of Rs. 4 lakh crore to the banking system.

Supervisory bodies assess asset quality, cash holdings, probably the abolition of funds, if any, mark non-business transactions among a number of other requirements. “Bankers are concerned about the outcome of NBFC credit, so they want an assessment of the actual credit quality of their books and the potential buildup of stress that may occur,” said a banker who said the case. “A tender document has been sent to agencies working in this space and appointments will be announced soon.”

According to the document shared by the Bank of Baroda with the specialized monetary agencies paneled with the bankers’ lobby IBA, the scope of work will include assessing the quality of the loan book, additional traction, end use of borrowed funds, outstanding contingent liabilities, undamaged Forex exposure and fake practices for everyone. These agencies will also assess the current cash flow and its adequacy for doing business. “As companies continue to be disturbed because of COVID-19, the monitoring of NBFCs via ASMs should be suitably hinged on extensive inflow and outflow control of cash flows and operating expenses, to specifically analyze group companies / trans group transactions and related party transactions, “he said

Ashwin Kumar, Chief Financial Officer, FTI Consulting. “Monitoring should focus on asset management that looks at internal controls / regulations regarding NPAs monitoring, liquidity issues and the quality of fresh assets.”

From the non-bank lenders being assessed, Bajaj Finance and Bajaj Housing Finance have the maximum exposure totaling Rs 1.05 lakh crore, followed by HDB Financial Services at Rs 47,161 crore. Tata Group companies Tata Capital Financial Services, Tata Motors Finance and Tata Capital Housing Finance have a total exposure of 71,000 crore. Among the other major exposures under consideration are Aditya Birla Finance and Aditya Birla Housing Finance has loans of 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 is Housing Area with loans of almost Rs 18,000 crore and M&M Finance plus it is a housing development arm with loans of almost Rs 24,000 crore.

Well-known people said the coronavirus outbreak, the policy changes surrounding the moratorium and the complete halting of new bankruptcy cases for the year have left little visibility for the company’s health, forcing them to conduct such audits.

“At a time when the entire system is undergoing stress, it becomes important for lenders to monitor the use of funds in borrower companies where they have exposure,” said Jeenendra Bhandari, partner, MGB & Co LLP, an IBA empaneled ASM company , which has conducted similar audits for private equity funds and lenders.

“This is because no one likes surprises, and if corrective action or misuse of funds or leaks identified by the auditors is required, lenders will learn to know in advance before it becomes a major issue or NPA.”

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