Tata Capital’s CEO affirms the company’s minimal exposure to revolving credit amid India’s Reserve Bank proposal to limit non-bank financial firms to fixed-term loans, aiming to curb risk of evergreening and protect financial stability.
Tata Capital said its exposure to revolving credit is less than 5% of its loan book, as the Reserve Bank of India weighs a proposal that could force non-bank lenders to move away from flexi-credit products. Rajiv Sabharwal, the company’s managing director and chief executive, said Tata Capital will submit feedback to the regulator and will comply with whatever final rules emerge.
Speaking on the sidelines of a banking conference organised by the Federation of Indian Chambers of Commerce & Industry and the Indian Banks’ Association, Sabharwal said the company was still collating data for its response. “I think they have given out a paper, and have asked for feedback, so we will give feedback. Whatever the final regulation is, we will comply. It (revolving credit) is a small percentage for us , below 5 per cent. We are also collating all data and will give our feedback to the regulator,” he said.
At the end of June, Tata Capital had a gross loan book of ₹2.86 trillion and assets under management of ₹2.90 trillion, according to the company. The Reserve Bank’s proposal would limit non-bank financial companies to term loans with fixed repayment schedules, effectively ruling out products that allow borrowers to draw down and repay the same credit line repeatedly. The central bank has invited comments until August 28.
The move is aimed at reducing the risk of evergreening, in which borrowers meet obligations by taking fresh draws rather than generating enough cash to repay debt. Credit cards issued by authorised lenders and bullet repayment loans are excluded from the proposal, but brokers say Bajaj Finance is likely to be the most affected because flexi-credit products make up about 15% of its consolidated assets under management and nearly 20% of its standalone loan book. Cholamandalam Investment and Finance has less than 1% exposure, while L&T Finance and Poonawalla Fincorp have negligible exposure, according to estimates cited by Business Standard.
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