Profits earned by the NBFC Company can either be retained in business or it can be used for the...
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.
RBI Deputy Governor N. S. Vishwanathan stated in an analysts meet after the Monetary Policy Committee (MPC) meeting
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 RBIproposes 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.
Deputy Governor also answered the questions regarding the steps RBI is taking to ensure the stability of the financial system across the country. He also stated
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 Non- Banking Financial Companies 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 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.