The Reserve Bank of India (RBI) has sought data from non-banking finance companies (NBFCs) on their investments and financing activities in the capital markets in the last two months.
Banking industry sources said data has been sought both on the source and deployment of funds by NBFCs, both those that accept deposits and those that don't.
Market estimates put NBFC exposure to the capital market at Rs 70,000 crore. Sources said most NBFCs have far exceeded the stipulated ceiling on capital market exposure to single entities or corporate groups.
However, unlike banks that have a limit of 5 per cent of incremental deposits to be deployed in the capital market, NBFCs are not subject to an overall ceiling.
Most NBFCs in the loan and investment business borrow funds from mutual funds at 13 to 14 per cent and lend them to retail investors, especially those investing in initial public offers (IPOs), at 20 to 22 per cent.
With the downturn in the capital market over the past two weeks, the central bank is worried that many IPOs will not list above their offer prices.
This may cause NBFCs to call in their loans fearing that investors will be unable to raise the money from the markets, precipitating a payments crisis.
A section of the market feels that NBFC funds may also be flowing into the capital market through their investments in various mutual funds schemes.
The mutual funds in turn invest in the commercial papers and non convertible debentures that NBFCs float at very high rates of interest and short tenures of 15 to 30 days.
Dealers explained that interest rates on such products are linked to the Mumbai Interbank Offered Rate (MIBOR), a polled rate from banks based on the benchmark overnight interbank rate, and is reset everyday. These instruments, therefore, carry daily call and put options.