RBI announces steps to boost liquidity for NBFCs
MUMBAI: The Reserve Bank of India (RBI) on Friday allowed banks to lend more to non-banking finance companies (NBFC), by increasing the single borrower exposure limit from 10 per cent to 15 per cent. The increase has been limited up to December 31, 2018, and has excluded NBFCs that lend to the infrastructure sector.
This is part of a series of measures announced over the past few weeks since the crisis hit Infrastructure Leasing & Financial Services (IL&FS) and panic over defaults affected NBFCs.
Further improving funds available for lending to NBFCs by Rs 50,000 crore, banks have also been allowed to use government securities equal to their incremental outstanding credit to NBFC lenders, over and above their outstanding credit to them as on October 19, for the purpose of meeting liquidity coverage ratio (LCR) requirements. “But , for a large part of the banking system, LCR isn’t currently the constraint,” Credit Suisse noted. “…bank loans to NBFCs are up 40 per cent year-on-year and already account for 5-11 per cent of their book. Therefore, while headroom for NBFC lending has increased, their appetite to raise exposure to all NBFCs, particularly weaker ones, will be limited and they are likely to prefer portfolio buyouts,” it added.
“Measures are good, but it is delayed,” said Deo Shankar Tripathi, managing director, Aadhar Housing Finance, pointing out that bank lending to the sector has been virtually frozen since September 21, affecting disbursements that were planned on limits sanctioned earlier. Short term funds through Commercial Paper and other facilities have also come to a halt for a large section, while mutual fund investments in NBFC debt instruments have been hit after the massive redemptions faced by liquid funds in September.
National Housing Bank had earlier enhanced refinance limit for HFCs by Rs 6,000 crore and SBI had expressed its willingness to buy Rs 30,000-45,000 crore worth of loans from NBFCs. While NHB’s announced refinance window is small, SBI’s announcement will save many companies from default, Tripathi noted.Experts say these measures may take a couple of months to take effect on ground and fear its ripple effect on housing-related industries and employment.
New Liquidity boosting measures
- Banks have been allowed to lend more to NBFCs through an increase in bank’s single borrower exposure limit from 10 per cent to 15 per cent. This increase has been limited up to December 31, 2018, and has excluded NBFCs that lend to the infrastructure sector
- Bank’s have also been allowed to use government securities equal to their incremental outstanding credit to NBFC lenders, over and above their outstanding credit to them as on October 19, to meet liquidity coverage ratio (LCR) requirements