Home Headlines RBI tells NBFCs to maintain LCR

RBI tells NBFCs to maintain LCR

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Bengaluru: The Reserve Bank of India (RBI) has asked all the deposit-taking non-banking financial companies (NBFCs), and the ones with an asset size of Rs 5,000 crore and above to maintain Liquidity Coverage Ratio, amid increasing crisis in the sector.

“All non-deposit taking NBFCs with asset size of Rs 5,000 crore and above, and all deposit-taking NBFCs irrespective of their asset size, shall maintain a liquidity buffer in terms of a Liquidity Coverage Ratio (LCR),” RBI said in the draft guidelines issued on Friday.

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LCR refers to the proportion of highly liquid assets held by the financial institutions to ensure ongoing ability to meet short-term obligations.

The central bank said these measures will promote resilience of NBFCs to potential liquidity disruptions by ensuring they have sufficient High-Quality Liquid Asset (HQLA) to survive any acute liquidity stress scenario lasting for 30 days.

The Reserve Bank said that it will implement LCR through a glide path from April 1, 2020, to April 1, 2024.

“The LCR requirement shall be binding on NBFCs from April 1, 2020, with the minimum High-Quality Liquid Assets (HQLA) to be held being 60% of the LCR, progressively increasing in equal steps reaching up to the required level of 100% by April 1, 2024,” the draft, posted on the RBI website said.

Earlier, last week, a top government official, Corporate Affairs Secretary Injeti Srinivas, flagged an imminent crisis in the NBFC sector. Specifically, he pointed to a credit squeeze, over-leveraging, excessive concentration, a massive mismatch between assets and liabilities, coupled with some misadventures by some large entities, as primary concerns in the sector.

The crisis in the NBFCs has been arising out of structural problem — they raise short-term funds and lend them out as long-term loans, thereby causing an asset-liability mismatch. When this happens on a large scale, with thousands of crores involved, it results in a liquidity crunch and a repayment crisis for the NBFC.

RBI also said it will revise norms on asset-liability management.

Times Of Media Staffhttps://www.timesofmedia.com
A team of writers in the house of Times Of Media, which consists of journalists with broad, deep experience in print and online writing, publication and site management, news coverage, and editorial team management.

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