The non-banking finance companies, most of whom are cash strapped, want the Reserve Bank of India (RBI) to implement liquidity risk management rules only in tandem with an arrangement for making available much needed funds. Else, RBI should defer the roll out of risk management rules until liquidity situation become normal.
“The proposed guidelines should be made concomitant with provision of a mechanism of liquidity support for NBFCs. Currently, with the tight liquidity conditions in the industry have made generation of funds a very difficult task. We request the RBI to kindly consider putting in place a suitable mechanism for such liquidity support,” Finance Industry Development Council (FIDC), industry lobby group said in representation to RBI.
RBI intends to prescribe stringent rules for liquidity risk management as many NBFCs were hit by a severe asset liability mismatch. They ran their business using short term funds to give long term loans.
Many of these measures such as granular maturity buckets, the stock approach, diversification of funding sources, stress testing etc., become very onerous for non-systemically important, smaller NBFCs, FIDC said.