{"id":25484,"date":"2019-10-11T17:28:04","date_gmt":"2019-10-11T11:58:04","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=25484"},"modified":"2020-12-31T17:12:40","modified_gmt":"2020-12-31T11:42:40","slug":"rbi-ruled-out-special-liquidity-facility-for-nbfcs","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/rbi-ruled-out-special-liquidity-facility-for-nbfcs\/","title":{"rendered":"RBI Ruled Out Special Liquidity Facility for NBFCs"},"content":{"rendered":"

RBI’s Deputy Governor N.S Vishwanathan said that there is adequate liquidity facility in the system to meet NBFCs needs for borrowings<\/em><\/strong><\/p>\n\n\n

Reserve Bank of India (RBI) has eliminated the possibility of any special liquidity for Non-Banking Financial Institutions<\/strong> (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.<\/p>\n\n\n

Statement on Liquidity Facility for NBFCs<\/h2>\n\n\n\n

RBI Deputy Governor N. S. Vishwanathan<\/strong> stated in an analysts meet after the Monetary Policy Committee (MPC) meeting<\/p>\n\n\n\n

<\/p>

“<\/em>Reserve Bank’s position is that there is adequate\nliquidity in the system and it is for the lenders to take a view on which\nborrower to give money to and I do not think at this moment we are looking at a\nliquidity facility for NBFCs”.<\/em><\/div>\n\n\n\n

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<\/strong> could create a level of stress on the financial system. This lack of confidence among lenders can delay monitory transmission and affect growth.<\/p>\n\n\n\n

Note: <\/strong>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.<\/p>\n\n\n\n

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<\/a><\/strong>. If there’s any proposed change, will it be effective for ongoing annual review of the financial year 2019 or not.<\/p>\n\n\n\n

According to RBI there will be a refurbishment of its regulatory and supervisory structure and creating a specialized cadre for this.<\/p>\n\n\n\n

RBIs Deputy Governor M.K Jain said <\/strong><\/h3>\n\n\n\n

<\/p>

“RBI has decided to\nrevamp it’s regulatory and supervisory structure and creating a specialized\ncadre. Offsite supervision, as well as, analytical vertical is being\nstrengthened, and for NBFC<\/a> supervision, we have strengthened all the core pillars-\nonsite supervision, an offsite market<\/a> in intelligence and statutory auditor\nangle”. <\/em><\/div>\n\n\n\n

Deputy Governor also answered the questions regarding the steps RBI<\/strong>[1]<\/strong><\/a><\/sup> is taking to ensure the stability of the financial system across the country. He also stated <\/p>\n\n\n\n

<\/p>

“RBI makes a periodic assessment of\nrisk and vulnerability of the financial system to shocks emanating both from\ndomestic and external adverse developments and takes mitigating steps to\nenhance its resilience. Such assessments are published twice a year in the\nfinancial stability report. The vulnerability arising out of interconnectedness\nbetween banks and non-banking financial institutions also forms part of the\nassessment”.<\/em><\/div>\n\n\n\n

Liquidity Risk Management Framework<\/h2>\n\n\n\n

An analysis of the recent advancements in the NBFC sector pointed to the need for a well-defined Asset Liability Management<\/a> (ALM) framework in the NBFCs. For this RBI recently released draft circular on “Liquidity Risk Management Framework for NBFC and Core Investment Companies”<\/strong> 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.  <\/p>\n\n\n\n

Read our article<\/b>:New Guidelines on Liquidity Risk Management framework for NBFCs<\/a><\/mark><\/p>\n\n\n\n

Read more from here:<\/strong><\/p>\n\n\n“Liquidity-Risk-Management-Framework
<\/a>\n

<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

Suggested Reads:<\/strong> <\/p>\n\n\n\n