Relief for NBFCs, HFCs: RBI eases liquidity norms

The Reserve Bank of India (RBI) has allowed banks to use government securities equal to their outstanding credit to non-bank lenders, over and above their outstanding credit to them as on October 19, to be used to meet liquidity coverage ratio requirements.

Non-bank lenders include all non-banking financial companies (NBFCs) and housing finance companies (HFCs). The above provision will be available with immediate effect and till December 31 this year, the central bank said in a notification.

Liquidity coverage ratio refers to highly liquid assets that financial institutions need to hold in order to meet short-term obligations.

Banks' statutory liquidity ratio under FALLCR is currently 13 percent of their net demand and time liability (NDTL). The new provision will be over and above this limit.

FALLCR stands for Facility to Avail Liquidity for Liquidity Coverage Ratio.

The announcement comes at a time when NBFCs and HFCs are suffering a confidence crisis due to growing fears of them not having enough cash to repay their debt. The crisis started after a series of defaults by Infrastructure Leasing & Financial Services (IL&FS) and its subsidiaries in early September.

"Today's move by RBI will certainly ease liquidity for the NBFCs from the banking system. However, the impact will felt more prominently by private banks who can now leverage this additional window of liquidity to lend to NBFCs," said Sanjay Chamria, Vice Chairman and Managing Director, Magma Fincorp.

In addition to this, the central bank also increased the single-borrower exposure limit for NBFCs that do not lend to the infrastructure sector to 15 percent of their capital funds from 10 percent earlier.

"The single client exposure limit being increased to 15 percent is a welcome step, but may need to be phased back to 10 percent gradually in 2019, if at all. RBI may need to clarify whether the higher single client exposure up to 15 percent taken till December 31, 2018, could be extended thereafter," Chamria said.