At a time when the market is abuzz with talks surrounding liquidity shortfall, billionaire industrialist Ajay Piramal has a contrary view.

According to the 63-year old industry veteran, it’s the lack of confidence among bankers and mutual funds to lend to struggling non-banking financial companies (NBFCs) that is fueling the crisis.

"Today though there is liquidity in the system, it is more a matter of confidence. I find banks and mutual funds are not lending as much as they would have to most NBFCs,” said Piramal, chairman of Piramal Enterprises, on Friday.

The NBFC sector is under crisis since last month when it came to light that IL&FS group defaulted on short-term loans. As an immediate aftermath, NBFCs' stocks went into free fall. The top 15 NBFC companies cumulatively lost over Rs 75,000 crore in just two initial trading sessions.

The ongoing selloff in the NBFCs has snowballed into a liquidity squeeze, triggering panicky outflows from mutual funds and risk aversion at large.

In an interaction with CNBC-TV18, Piramal said, his company Piramal Enterprises has not faced these problems because banks have rolled over more than 70 percent of their commercial paper that was due.

The company's loan book grew by 60 percent to almost Rs 53,000 crore this quarter, with non-performing assets at 0.50 percent of that amount.

What makes these numbers even more admirable is that a lion's share of this money has been lent to real estate developers as construction finance. While the market is rife with speculation that more real estate companies may default on payments, Piramal is confident of the bets he had made on quality and prudence.

When asked about the sustainability of this kind of growth in his lending portfolio, Piramal said that he is not afraid of demand going down. Many NBFCs have stopped lending to real estate companies, and Piramal Capital & Housing Finance is benefiting from this consolidation. However, he admits that in the current situation, the company's focus will be on having enough and more liquidity. It's a conservative approach that has paid many dividends for him thus far.

Not only has Piramal chosen what he calls "tier 1 developers" to deploy his capital, but he has also used the mantra of cross-collaterization. Piramal has lent money to developers who have multiple ongoing projects, to insulate himself from delays in a particular project or micro-market.

The company, in a statement released a few weeks back, clarified that they did not have exposure to developers who the market is expecting to default, and Piramal has backed this claim, confidently stating that he does not expect defaults from his real estate portfolio.

If a developer is unable to complete a project, Piramal can ask other developers from its portfolio to step in and ensure that delays are minimised. It's a show of strength for the Piramal group, but also a sober reminder of the credit shortage in the real estate sector, and the terms that developers seeking loans are agreeing to.

While Piramal Capital is in a position of power, Ajay Piramal is quick to show support for measures to increase liquidity in the market through the relaxation of the RBI's PCA norms.

"This is not like the crisis of 2008, there's no real shortage of liquidity. It's a shortage of confidence, and RBI relaxing its PCA norms will infuse confidence into the system", he said.

The central bank had specified a few regulatory trigger points, based on which some commercial banks have been brought under the ambit of the Prompt Corrective Action (PCA) framework.

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First Published:Oct 26, 2018 12:49 PM IST