Mumbai: The Reserve Bank of India has issued a statement announcing more measures to increase liquidity flows to the non-banking financial companies.
The move will help provide liquidity to housing finance companies (HFCs) and non-banking finance companies (NBFCs) which have come under pressure following a series of default by IL&FS group companies.
The RBI permitted banks to use government securities equal to their incremental outstanding credit to NBFCs, over and above their outstanding credit to them as on October 19, to be used to meet liquidity coverage ratio requirements.
“It has been decided that, with immediate effect, banks will be permitted to also reckon Government securities held by them up to an amount equal to their incremental outstanding credit to NBFCs and Housing Finance Companies (HFCs), over and above the amount of credit to NBFCs and HFCs outstanding on their books as on October 19, 2018, as Level 1 HQLA under FALLCR within the mandatory SLR requirement. This will be in addition to the existing FALLCR of 13 percent of NDTL, and limited to 0.5 percent of the bank’s NDTL,” RBI said in a notification.
This will be in addition to the existing FALLCR of 13 percent of total deposits and limited to 0.5 percent of the bank’s total deposits.
The additional window will be available up to December 31, 2018, the notification said.
The notification also mentioned that the single borrower exposure limit for NBFCs which do not finance infrastructure stands increased from 10 percent to 15 percent of capital funds, up to December 31, 2018.
The liquidity coverage ratio requires banks to hold enough high-quality liquid assets (HQLA) – such as short-term government debt – that can be sold to fund banks during a 30-day stress scenario designed by regulators.
The Reserve Bank of India’s move to ease liquidity norms for NBFCs or non-banking financial corporation and HFCs comes as a huge relief to the industry and banks will now be able to lend more to such NBFCs. The move is estimated to fetch NBFCs an estimated Rs 50,000 crore in lending.
Read the notification here: https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11396&Mode=0