RBI closely scrutinizing NBFCs' finances: MoS

Published: Jul 09, 2019

By TIOLCORPLAWS News Service

NEW DELHI, JULY 09, 2019: THE Union MoS for Finance & Corporate Affair, Mr Anurag Singh Thakur, today in Parliament mentioned that as per the RBI's Financial Stability Report (FSR), released on June 27, 2019, liquidity stress in NBFCs was reflected in the third quarter of the last financial year due to an increase in funding costs and difficulties in market access in some cases. Further, despite this, better-performing NBFCs with strong fundamentals were able to manage their liquidity even though their funding costs moved with market sentiments. As per RBI input, RBI does not maintain data on bond refinance by NBFCs.

FSR also states that better-performing companies continue to raise funds, while those with asset-liability management and/or asset quality concerns are subject to higher borrowing costs, he added. RBI has informed that it is closely monitoring the liquidity position of NBFCs and, with a view to strengthen the NBFCs and maintain stability of the financial system, it has been taking necessary regulatory and supervisory steps, such as -

(i) Open market operations were conducted, in addition to regular Liquidity Adjustment Facility auctions, to inject liquidity in financial markets.

(ii) RBI permitted special dispensation to banks up until March 31, 2019, whereby their incremental credit to NBFCs and Housing Finance Companies (HFCs) after October 19, 2018, could be treated as high quality liquid assets for calculation of Liquidity Coverage Ratios.

(iii) The single-borrower exposure limit for NBFCs that do not finance infrastructure was increased from 10 percent to 15 percent of capital funds, up to 31 st March 2019.

(iv) Banks were permitted to provide partial credit enhancement for non-deposit accepting systematically-important NBFCs registered with RBI and HFCs registered with National Housing Bank as per guidelines.

(v) RBI reduced the minimum average maturity requirement for External Commercial Borrowings in the infrastructure space raised by eligible borrowers from five years to three years.

(vi) To encourage NBFCs to securitise/assign their eligible assets, the Minimum Holding Period requirement for originating NBFCs was relaxed till December 2019.

(vii) NBFCs were provided regulatory concessions to enable restructuring of MSME loans.

(viii) NBFCs with assets over Rs. 5,000 crore have been asked to appoint a Chief Risk Officerto improve the standards of risk management.

As per RBI, liquidity in the financial system turned into surplus in early June 2019, after a large injection of durable liquidity by RBI in the previous months. The liquidity surplus/deficit in the banking system is reflected in the net amount absorbed/injected by RBI under the Liquidity Adjustment Facility (LAF) and includes Marginal Standing Facility (MSF). As per RBI data, the daily net liquidity progressively improved from an average daily deficit of Rs 70,004 crore during April 2019 to average daily deficit of Rs 33,400 crore during May 2019 and to average daily surplus of Rs 51,710 crore during June 2019. As of July 3, 2019, the liquidity surplus had reached a level of Rs 1,39,265 crore.

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