RBI allows NBFCs to raise $10 mn in foreign currency

After mutual funds and banks, the Reserve Bank of India (RBI) today stepped in to help cash-strapped non-banking financing companies (NBFCs) by allowing a majority of them to raise up to $10 million through short-term foreign currency loans.

The RBI said it would allow systemically important non-deposit taking NBFCs to raise resources for refinancing short-term liabilities on a temporary basis. NBFCs have been barred from booking fresh assets out of resources raised through short-term foreign currency loans.

The maximum tenure of these loans can be three years and the all-in-cost interest ceiling has been capped at 200 basis points above six-month Libor. The resources, which can be raised from institutions and foreign equity holders with 25 per cent or more stake, will need to be swapped into rupees.

“The liquidity situation is such that any source of funding will be of use. But what is $10 million (Rs 50 crore). The intermediation cost of such small loans is high and I am not sure if it will be of great help,” said the head of an NBFC.

“It’s a welcome step and it may be a starting point as we are looking forward to other measures,” said Reliance Capital CEO Sam Ghosh.

Of late, non-deposit taking NBFCs are finding it tough to access funds, especially from banks, and have sought a series of measures from the RBI including rollover of debt by banks. In addition, they want banks to disburse sanctioned amounts and access to external commercial borrowings. Over the past few weeks, these finance companies have held a series of meetings with the central bank to present their case.

The RBI today said the foreign currency loan facility would be able to those non-deposit taking NBFCs that comply with prudential norms related to capital adequacy and exposure.

Earlier this week, the RBI allowed these NBFCs to raise capital through Perpetual Debt Instruments. The capital raised through this instrument would be a part of their tier-1 capital.