At the Business Today Banking and Economy Summit in Mumbai, Non-Banking Financial Companies (NBFCs) industry leaders said that government regulations are instrumental for the financial health of financial institutions.
Ramesh lyer, the Vice-Chairman and Managing Director of Mahindra Finance said, “Is the regulation a little too tight? Is it too much? And I've always felt and believed that yes, when the regulations do get announced, it's not very easy to implement them. But once you're done it, well, you've taken it into your business model, your balance sheet only becomes more stronger ”
Iyer explained his point by stressing, “We must all believe that the regulation is being done to strengthen your balance sheet. It's not to weaken your balance sheet and become systemically dangerous. I think the regulator does note that there is little more room for more regulation to make the balance sheets much stronger.”
The VC of Mahindra Finance explained the collapse or failure of NBFCs happens due to issues on the liability size of the balance sheet. He explained, “The collapse or a failure of an NBFC always happens from a liability side. Either you will not manage your capital well, or you will not manage your liabilities well, or you have not had good governance and you collapsed or whatever. So, whenever something like this happens, for businesses, which are extremely well governed, and has managed their balance sheet very well becomes even more important to the system.”
He added, “So let's first get that clear to say that yes, in industry, you will have some collapses, some wrongdoing, somebody's not doing it well, etc., etc. But the size and scale rubbish, the size and scale of these collapses have been pretty significant.”
“So, it does bring pressure on balance sheets like us, we are also launched, immediately there is a knee jerk reaction that happens in the market, sometimes liquidity can become little more difficult to raise, all of that will begin to happen.
I think those things should never scare a well-run NBFC,” he explained.