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NBFCs given 4 must-dos during pandemic

K.V. Srinivasan, Co-chairman, Finance Industry Development Council (FIDC) has listed 4 measures that NBFCs – especially the small and medium ones – should do to bring in benefits for them in the times of the pandemic. In a blog post, he said in the first instance they should put governance standards in place for a much larger scale of business – in terms of getting good external directors on board, getting knowledgeable consultants to reshape business and making compliance with regulations as a top priority. This will surely bring the profit down in the short run, but will boost respectability and therefore business prospects in the longer run, he writes. The second measure, according to him, is to keep at least 45-60 days of cash flow needs as liquid securities, which should be seen as an insurance policy against defaulting on any liability repayment obligation. The third, he says, is to be open to merger/consolidation/external equity infusion if that can help in diversification of risk or quicker growth and sustainability of business. Finally, the fourth measure, says he, is that the NBFCs should learn that there is no short-cut to a long, hard route to a successful business. Conservative lending practices, constant effort to get higher credit ratings, strong focus on governance etc. do not come easy, but there is really no choice, he adds. He also reminds NBFCs that their only ally is the fundamental strength of their business, that their business is not just an asset-side business, but is very much a liabilities-side business, that size matters as even in these times of crises, larger NBFCs have managed to withstand adversities than small entities and finally there is no substitute to high standards of governance.

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