Economic Survey 2020: Health Score Proposed To Monitor NBFCs, Housing Financiers

The Economic Survey 2019-20, released by the chief economic adviser’s office a day ahead of Union Budget 2020-21, has proposed that regulators and other stakeholders begin using an index to determine the health of non-bank lenders and housing financiers.

Similarly, the survey analysed the retail NBFC sector and found that the rollover risk isn’t always inversely related to its size, as on average, smaller-sized non-bank lenders had higher health scores than their medium-sized peers.

The annual reports of 15 private sector non-bank lenders with combined assets under management worth Rs 6.8 lakh crore as of Mar. 31, 2019, were analysed, the survey said.

The health score of small and large retail NBFCs peaked in 2016-17, but fell from then on to recover marginally in 2018-19, according to the survey. The health score of medium-sized NBFCs has historically been lower, it said.

The survey said regulators can use the index to detect early warning signals of impending rollover-risk problems among non-bank lenders and housing financiers as a downtrend in the health score of a company can be used to trigger enhanced monitoring.

It can also be used to set prudential thresholds on the extent of wholesale funding that can be permitted for firms in the shadow banking system, it said.