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ASSOCHAM hails RBI’s decision to incentivise banks to ease liquidity crunch at NBFCs
Oct-22-2018

Welcoming the Reserve Bank of India’s decision to incentivise banks to enhance their lending to non-banking finance companies (NBFCs), the industry chamber, Associated Chambers of Commerce and Industry of India (ASSOCHAM) has stated that this step will help NBFCs in tackling liquidity crunch. The RBI allowed the banks to use government securities equivalent to their incremental credit to NBFCs for a three-month period to meet their liquidity coverage ratio requirements. The provision will allow banks to free up Rs 50,000-60,000 crore of liquidity which banks can lend to NBFCs till December 31.

ASSOCHAM also said this shall also send a message that the recent developments do not indicate any systemic problem but it is merely a case of sentiments having gone wrong after one of the big NBFCs defaulted. It added that the whole issue of asset liability mismatch is more relevant in case of long-term lending companies like the housing finance companies and infra financing NBFCs.

The industry chamber further said a typical NBFC model is a retail lending model with short tenures of 2-5 years and small ticket sizes where asset liability mismatch is not a concern. NBFCs have shown impressive growth for the last few years maintaining a high capital adequacy ratio which is higher than the minimum prescribed levels. It noted that this growth has also been healthy as reflected in better asset quality. However, provision of a dedicated refinance window, especially, for the large number of small and medium sized NBFCs is very important to ensure future growth.

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