ASSOCHAM lauds RBI's move enabling NBFCs to tackle liquidity crunch

The ASSOCHAM lauded the Reserve Bank of India's (RBI) move to incentivise banks which are enhancing credit lending facilities to non-banking financial companies (NBFCs) by easing liquidity norms and increasing the ceiling for lending to a single NBFC until December 31.

The industry body said the RBI's move would enable NBFCs to tackle the liquidity crunch. It further said the decision will send a message that the recent developments do not indicate any systemic problem but is merely a case of sentiments having gone wrong after one of the big NBFCs defaulted.

"The whole issue of asset liability mismatch is more relevant in case of long term lending companies like the Housing Finance companies and Infra Financing NBFCs. A typical NBFC model is a retail lending model with short tenures of two to 5 years and small ticket sizes where asset liability mismatch is not a concern. NBFCs have shown impressive growth for the last few years maintaining a high capital adequacy ratio which is higher than the minimum prescribed levels. This growth has also been healthy as reflected in better asset quality," a statement from the ASSOCHAM read.

The industry body, however, reiterated that the provision of a dedicated refinance window, especially for the large number of small and medium-sized NBFCs, is very important to ensure future growth.

On Friday, the RBI had announced that banks will be permitted to 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 as Level 1 high-quality liquid assets (HQLA) under the Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) within the mandatory statutory liquidity ratio (SLR) requirement.

"This will be in addition to the existing FALLCR of 13 per cent of Net Demand and Time Liabilities (NDTL), and limited to 0.5 per cent of the bank's NDTL," it added.

The central bank further said the additional FALLCR will be available up to December 31.

It also announced that the single borrower exposure limit for NBFCs which do not finance infrastructure has been hiked from 10 to 15 per cent of capital funds, up to December 31.