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The Reserve Bank of India has further activated additional funding lines for non-banking finance companies (NBFCs), including housing finance companies (HFCs), by temporarily relaxing regulatory prescriptions so that banks can take higher exposure to them and also draw more liquidity under the so-called ‘liquidity coverage ratio’.
The twin moves could encourage banks to lend more to NBFCs. They are probably aimed at ensuring that NBFCs don’t face any liquidity constraints in the wake of debt defaults by IL&FS and some of its arms and stem any spillover of the high real estate exposure of a few HFCs to other NBFCs.
The RBI on Friday upped the single-borrower exposure limit for NBFCs that do not finance infrastructure, from 10 per cent to 15 per cent of capital funds, up to December 31. This relaxation will enable banks to temporarily take a higher loan exposure to NBFCs.
G-Sec holdings
The central bank also announced that banks will be permitted to reckon Government Securities (G-Secs) 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 Friday, as Level 1 HQLA (high quality liquid asset).
This has been permitted under FALLCR (Facility to Avail Liquidity for Liquidity Coverage Ratio) within the mandatory SLR (statutory liquidity ratio) requirement.
LCR promotes short-term resilience of banks to potential liquidity disruptions by ensuring that they have sufficient HQLAs to survive an acute stress scenario lasting 30 days. FALLCR is a specially created facility to allow banks to draw on liquidity under the LCR.
SLR is the slice of deposits that banks have to mandatorily invest in G-Secs. This ratio is currently at 19.5 per cent of deposits.
The move to reckon G-Secs held by banks up to an amount equal to their incremental outstanding credit to NBFCs and HFCs is in addition to the existing FALLCR of 13 per cent of NDTL (net demand and time liabilities or deposits), and limited to 0.5 per cent of the bank’s NDTL.
In the last few weeks, the RBI, National Housing Bank and State Bank of India have opened the liquidity taps to ensure that lenders and NBFCs do not face restraints in lending in the traditionally busy season of October-March due to liquidity issues.
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