NBFC Registration
NBFC

RBI Ruled Out Special Liquidity Facility for NBFCs

Liquidity Facility

RBI’s Deputy Governor N.S Vishwanathan said that there is adequate liquidity facility in the system to meet NBFCs needs for borrowings

Reserve Bank of India (RBI) has eliminated the possibility of any special liquidity for Non-Banking Financial Institutions (NBFCs), stating that there’s already enough in the system to meet their needs for borrowings. On the other hand, it is up to the lenders to take a call on lending to NBFCs.

Statement on Liquidity Facility for NBFCs

RBI Deputy Governor N. S. Vishwanathan stated in an analysts meet after the Monetary Policy Committee (MPC) meeting

Reserve Bank’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 and I do not think at this moment we are looking at a liquidity facility for NBFCs”.

He was answering the questions related to the financial markets, where lenders are not very confident to lend their money to below AAA names and the liquidity problem faced by these entities could create a level of stress on the financial system. This lack of confidence among lenders can delay monitory transmission and affect growth.

Note: AAA names means which boasts a high degree of trustworthiness, because they are easily able to meet their financial commitments. Therefore, they run lower risks of defaulting.

After a fraud at PMC, there were many questions in the mind of analysts related to the strength of the financial system in the country. They wanted to know whether RBI proposes any changes in the annual review process of Banks or NBFCs. If there’s any proposed change, will it be effective for ongoing annual review of the financial year 2019 or not.

According to RBI there will be a refurbishment of its regulatory and supervisory structure and creating a specialized cadre for this.

RBIs Deputy Governor M.K Jain said

“RBI has decided to revamp it’s regulatory and supervisory structure and creating a specialized cadre. Offsite supervision, as well as, analytical vertical is being strengthened, and for NBFC supervision, we have strengthened all the core pillars- onsite supervision, an offsite market in intelligence and statutory auditor angle”.

Deputy Governor also answered the questions regarding the steps RBI[1] is taking to ensure the stability of the financial system across the country. He also stated

“RBI makes a 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 also forms part of the assessment”.

Liquidity Risk Management Framework

An analysis of the recent advancements in the NBFC sector pointed to the need for a well-defined Asset Liability Management (ALM) framework in the NBFCs. For this RBI recently released draft circular on “Liquidity Risk Management Framework for NBFC and Core Investment Companies” to be adopted by all deposit-taking NBFCs, non-deposit taking NBFCs with an asset size of Rs 100 crore or above, and all CICs which are registered with the Reserve Bank. 

Read our article:New Guidelines on Liquidity Risk Management framework for NBFCs

Read more from here:

“Liquidity-Risk-Management-Framework

Besides this, the draft also recommends introducing Liquidity Coverage Ratio (LCR) for all deposit-taking NBFCs as well as non-deposit taking NBFCs with an asset size of Rs 5000 crore and above. To make sure a refined transition to the LCR regime, the proposal is to implement it after a careful assessment over a time period of 4 years commencing from April 2020 and going up to April 2024.

Suggested Reads:

Shubham Chauhan

A passionate legal content writer, a nature enthusiast, an avid reader, and a part-time thinker. By means of conducting in-depth research on industry related topics, Shubham often builds flawless and intelligible legal content for populace from all walks of life.

NBFC Registration

Trending Posted

Our Awards Our Awards

Top 100 Companies in Asia - Red Herring
Top 100 Companies in Asia - Red Herring

Red Herring Top 100 Asia enlists outstanding entrepreneurs and promising companies. It selects the award winners from approximately 2000 privately financed companies each year in the Asia. Since 1996, Red Herring has kept tabs on these up-and-comers. Red Herring editors were among the first to recognize that companies such as Google, Facebook, Kakao, Alibaba, Twitter, Rakuten, Salesforce.com, Xiaomi and YouTube would change the way we live and work.

Top 25 in India - Consultants Review

Researchers have found out that organization using new technologies in their accounting and tax have better productivity as compared to those using the traditional methods. Complying with the recent technological trends in the accounting industry, Enterslice was formed to focus on the emerging start up companies and bring innovation in their traditional Chartered Accountants & Legal profession services, disrupt traditional Chartered Accountants practice mechanism & Lawyers.

Top 25 in India - Consultants Review

In the news