The Reserve Bank of India has asked non-banking finance companies (NBFCs) to have a desirable organisational set up for liquidity risk management, formulate a contingency funding plan, and recognise the likely increased risk arising due to intra-group transactions and exposures (ITEs).

The aforementioned perscriptions come in the wake of the IL&FS debt default crisis last year and alleged diversion of funds at Dewan Housing Finance Corporation Ltd. These prescriptions are part of the RBI’s guidelines on liquidity risk management framework for all non-deposit taking NBFCs with an asset size of ₹100 crore and above, systemically-important core investment companies, and all deposit-taking NBFCs irrespective of their asset size.

In the case of all non-deposit taking NBFCs with an asset size of ₹10,000 crore and above, and all deposit-taking NBFCs irrespective of their asset size, they are required to maintain a liquidity buffer in terms of liquidity coverage ratio, which will promote resilience of NBFCs to potential liquidity disruptions by ensuring that they have sufficient high-quality liquid asset (HQLA) to survive any acute liquidity stress scenario lasting for 30 days.

The stock of HQLA to be maintained by the NBFCs shall be minimum of 100 per cent of total net cash outflows over the next 30 calendar days. The LCR requirement shall be binding on NBFCs from December 1, 2020, with the minimum HQLAs to be held being 50 per cent of the LCR, progressively reaching up to the required level of 100 per cent by December 1, 2024.

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