Extending a special liquidity facility to non-banking financial companies (NBFCs) is not being considered, said the Reserve Bank of India (RBI).
In a teleconference with researchers and analysts, N S Vishwanathan, deputy governor at the central bank, said: “The RBI’s position is that there is adequate liquidity in the system and it is for the lenders to take a view on which borrower to give money to.”
He was responding to an observation on there being an extreme lack of confidence in financial markets to lend to entities with a credit rating below ‘AAA’. And, that the liquidity problems faced by such entities could create further stress on the financial system, impede monetary transmission and affect growth.
The NBFC issue started after Infrastructure Leasing and Financial Services defaulted on a loan last year. The fallout impacted other major NBFCs, like Dewan Housing Finance which defaulted in July and then Reliance Capital. Last month, Altico Capital was added to the list of defaulters.
In May, RBI issued draft guidelines on a liquidity risk management framework for NBFCs and core investment companies (CICs). It is still in consultation with stakeholders on further action in this regard.
To a question on RBI’s plans regarding changes in the annual review process of banks or NBFCs, and if such changes would impact the ongoing annual review of financial year 2019, M K Jain, another deputy governor, said: “RBI has decided to revamp its regulatory and supervisory structure, and is creating a specialised cadre. Offsite supervision, as well as the analytical vertical, is being strengthened. For NBFC supervision, we have also strengthened all the core pillars — onsite supervision, offsite, market intelligence and the statutory auditor angle.”
On steps to ensure stability of the financial system and on solvency at some housing finance companies, he said: “RBI makes periodic assessment of risk and vulnerability of the financial system to shocks emanating both from domestic and external adverse developments, and takes mitigating steps to enhance its resilience. Such assessments are published twice a year in the financial stability report. The vulnerability arising out of interconnectedness between banks and non-banking financial institutions forms part of the assessment.”