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After the volatility of the stock market on Friday, the central bank and the capital markets regulator said the developments were closely monitored and that they were ready to take action if necessary.
"The Reserve Bank of India and the Securities and Exchange Board of India are keeping a close watch on recent financial market developments and are ready to take appropriate action, if necessary," a statement said.
Sources said the senior officials of the central bank and market regulator had discussed the evolution of the period of Friday after which the statement was published.
Stock markets experienced dramatic fluctuations on Friday as some of the non-bank finance companies shrank. Mortgage lender Dewan Housing Finance Ltd. (DHFL) lost 42% of its market capitalization, which also had an impact on other NBFC securities. Investors are also worried about recent developments at IL & FS that had defaulted on commercial paper, resulting in a downgrade in their rating.
State Bank of India – the largest lender in the country – also intervened to allay the fears of concerned investors. SBI Chair Rajnish Kumar said the SBI would continue to lend to NBFCs. "Some comments are attributed to the SBI regarding the bank's mistrust of NBFCs.
Unfounded rumors
"The rumors are unfounded. The SBI supports and will continue to support NBFC in the private and public sectors, "said Kumar.
"The liquidity of the NBFCs is not a problem given their liquidity and the availability of the lines that are involved," he said.
"In fact, recent regulatory guidelines on the co-financing model open up new opportunities for SBI to collaborate with NBFCs that do not take deposits to increase lending to priority sectors," added Kumar.
Last week, the RBI released standards on loan co-creation by banks and NBFCs in the priority sector with the aim of reducing borrowers' interest burden.
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