Reserve Bank releases draft round on NBFC liquidity threat administration framework after IL&FS, DHFL money crunch

The Reserve Bank of India (RBI) on Friday issued a draft round on liquidity threat administration framework for non-banking monetary firms and core funding firms.

The central bank mentioned that the current developments within the NBFC sector pointed to the necessity for a stronger Asset Liability Management (ALM) framework within the NBFCs.

“While a number of the present regulatory prescriptions relevant to NBFCs on ALM framework have been up to date/recast, sure new options have been added. Among others, the draft pointers cowl utility of generic ALM ideas, granular maturity buckets within the liquidity statements and tolerance limits, liquidity threat monitoring software and adoption of the “stock” method to liquidity,” RBI mentioned in a notification on Friday.

The draft proposes to introduce Liquidity Coverage Ratio (LCR) for all deposit-taking NBFCs and non-deposit taking NBFCs with an asset dimension of Rs 5,000 crore and above, the central financial institution mentioned.

The RBI is in search of public feedback on the draft framework by 14 June, 2019. The proposal is to implement it in a calibrated method by a glide path over a interval of 4 years commencing from April 2020 and going as much as April 2024, RBI mentioned.

Representational picture. Reuters.

On Wednesday, sources mentioned RBI was not in favour of offering particular credit score window to the NBFC sector to tide over the liquidity crunch because the money crunch phenomenon will not be systemic.

Industry gamers and authorities think-tank NITI Aayog made a case for giving particular credit score window for non-banking monetary firms (NBFCs) dealing with liquidity crunch following default by a gaggle of firms of IL&FS since September 2018.

Many NBFCs, together with DHFL and Indiabulls Finance, got here underneath extreme liquidity stress compelling them to carry down their reliance on industrial papers.

Ever because the IL&FS disaster erupted, banks have been averse to lending to the sector, which has put them in a good spot. There are considerations that NBFCs might run out of cash, which is able to result in defaults.

According to the sources, the Reserve Bank of India (RBI) is of the view that particular window will not be required as of now primarily based on their evaluation. The central financial institution feels that the money crunch will not be a sector-specific phenomenon however restricted to a couple giant NBFCs which have over-leveraged as a consequence of aggressive lending.

With PTI inputs

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