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'10 years on, NBFC crisis shows we have not learnt our lessons from 2008 meltdown'

Pradhan said that the IL&FS crisis shows that the rating agencies had failed to understand the complexity of the cash flows

'10 years on, NBFC crisis shows we have not learnt our lessons from 2008 meltdown'
'10 years on, NBFC crisis shows we have not learnt our lessons from 2008 meltdown'

New Delhi: In the aftermath of the frauds that rocked the banking sector and the more recent NBFC crisis, the Managing Director (MD) of Union Bank of India (UBI) Ashok Pradhan has pinned the blame on the failure to take lessons from the 2008 Lehman crisis. In an interview given to a national English daily, Pradhan said that the crisis at IL&FS did not happen overnight and showed that the rating agencies had failed to understand the complexity of the cash flows at the organisation.

“They (rating agencies) were not doing their job professionally. It has led to so much of liquidity constraints to the NBFC sector. The NBFCs are suffering because of borrowing short and lending long. It’s high time that they correct it. But the larger picture here is that we haven’t learnt from the 2008 crisis. It is again the liquidity constraints and the failures of rating agencies,” said Pradhan.

‘NBFCs have not taken care of its money’

Pradhan said that at the heart of the crisis is the fact that the NBFCs has not taken care of their money. “They (NBFCs) should understand that they can’t play on short-term funds. That means, they have not taken care of their money. Why have they ventured into areas where cash flows are not clearly visible? Overborrowing from banks and taking advantage of arbitrage opportunities in terms of lending rates do not help in the long run. It is a fact the ongoing stress in banking has allowed NBFCs to grow… If banks can now take back that space, a lot of discipline will come back into the system,” he said.

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‘No hit for UBI’

The MD said that UBI’s exposure to NBFC is Rs 7,000 crore, down from Rs 11,000 crore, and added that the bank has not taken a hit so far because of the crisis. While noting that the worst was over, Pradhan said that he expected net NPAs to come down by 9 percent by March.

Pradhan also said that UBI expects to receive Rs 2,600 crore from the government in the third quarter as capital and has plans to raise Rs 1,500 crores via QIP. Referring to the business done by the bank, Pradhan said that UBI has a good and loyal customer base in rural Bengal and therefore, deposits are coming in with ease.

“In our projections submitted to the government, we said that our retail, SME and agricultural loans together would grow to 60 per cent by March 2019. It is 52 per cent now. We are not taking new corporate exposure and the prudential writeoffs are also helping to prune the wholesale book. As things stand now, we should be able to reach 56:44 kind of scenario by March,” Pradhan said.

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