RBI announces steps to increase liquidity flow to NBFCs


The RBI has taken series of steps to infuse liquidity in the system.

In another attempt to provide liquidity to HFC’s and NBFC’s, following series of default by IL&FS group companies, the Central Bank, today, permitted banks to use government securities equal to their incremental outstanding credit to NBFCs, over and above their outstanding credit to them as on October 19, to be used to meet liquidity coverage ratio requirements.

‘Banks will be permitted to also reckon government securities held by them up to an amount equal to their incremental outstanding credit to NBFCs and HFCs, over and above the amount of credit to NBFCs and HFCs outstanding on their books as on October 19, 2018, as Level 1 HQLA under FALLCR within the mandatory SLR requirement’ RBI said in a notification.

This will be in addition to the existing FALLCR [Facility to Avail Liquidity for Liquidity Coverage Ratio] of 13 per cent of total deposits and limited to 0.5 per cent of the bank’s total deposits.

‘In the backdrop of the NBFC liquidity crisis, credit flow to the real estate sector has been squeezed. This measure by the central bank is aimed at easing credit flow to NBFCs, which is welcome. However, its impact still depends on banks’ confidence to lend to this segment in the current environment’’ informed Shishir Baijal of Knight Frank India.

‘The single borrower exposure limit for NBFCs which do not finance infrastructure stands increased from 10 per cent to 15 per cent of capital funds, up to December 31, 2018’ the notification said.

The RBI has taken series of steps to infuse liquidity in the system. It has also been undertaking open market operation at regular intervals to add liquidity.

Shobhit Agarwal, ANAROCK Capital stated ‘With this move, the RBI has now made a proactive attempt to boost credit flows to NBFCs and it is a positive move per se. Banks are already grappling with the problem of NPA, and have consciously reduced their exposure towards real estate. The current IL&FS crisis has further complicated the liquidity crisis in the system and every lender is taking extra precautions while disbursing capital to NBFCs and HFCs, including banks. In the current background where real estate sales have been extremely slow and a substantial amount of projects are running behind schedule, banks might not be willing to lend to NBFc and HFCs. However, the NBFCs with strong track records might certainly get some respite from the banks.’

This additional window will be available up to December 31, 2018 according to the notification.