Boost to NBFCs: RBI to set up payment registry, raises limits for bank lending

Taking cognizance of the precarious position of non-banking financial companies (NBFCs), the Reserve Bank's Monetary Policy Committee (MPC) on August 7 announced key measures to tackle the crisis-hit sector.

These include setting up a central payments fraud registry to track the systems for frauds and increasing exposure limits for lending banks to single NBFCs to 20 per cent. The previous limit was 15 per cent of the bank’s Tier-I capital.

The limit increase will, however, exclude micro-finance institutions.

Speaking after the MPC’s announcement on August 7, Reserve Bank Governor Shaktikanta Das said measures taken by the government and the RBI “have to be seen together”.

The Bank said it would issue detailed guidelines by the end of August regarding these measures.

Welcoming the RBI’s measures Shishir Baijal, Chairman & Managing Director, Knight Frank India said, “The NBFC liquidity crisis has severely choked credit availability for the industry, especially developers, as they struggle to raise even construction finance. While the limit for priority sector lending for housing has been enhanced from Rs 10 lakh to Rs 20 lakh, the scope of this move is limited to the affordable housing segment.”

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He, however, added that more needs to be done to provide a liquidity stimulus to the broader real estate spectrum. “As the threat of a slowdown looms large on the Indian economy, strong measures such as substantial rate cuts and meaningful sector-specific policies need to be taken,” he said.

Niranjan Hiranandani, Senior Vice President, ASSOCHAM and National President – NAREDCO too felt that the industry would get respite with banks now allowed to lend more to NBFCs.

“Under the revised guidelines, banks can now take exposure of 20 percent of their Tier-I capital in one NBFC from 15 percent. NBFCs can now on-lend to the priority sector through banks,” Hiranandani said.

Tagging it an overall good policy, Rajiv Singh, CEO, Karvy Stock Broking said it should help improve liquidity, consumption and demand scenario in the economy albeit with a lag.

The central bank cut the repo rate by 35 basis points (100 bps=1 percentage point) to 5.4 per cent on August 7 — to the lowest level in the last nine years.

This is the fourth cut in a row since Shaktikanta Das took over as RBI governor in December 2018.

The move by the MPC comes against the backdrop of an economic slowdown, low inflation, global trade wars and geopolitical tensions.

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