RBI eases liquidity norms for banks, allows them to lend more to NBFCs
The central bank’s actions are an attempt to increase the flow of credit to NBFCs, to which banks have been reluctant to lend of late.
The Reserve Bank of India on Friday increased lenders’ single borrower exposure limit for Non-Banking Finance Companies which do not finance infrastructure, from 10% to 15% of capital funds, until December 31, 2018. The single borrower limit imposes a ceiling on the amount of loans, credit accommodations and guarantees which a financial institution or bank can grant to a single borrower.
On Friday, the RBI also eased liquidity norms for banks, allowing them to calculate government securities held by them up to an amount equal to their incremental outstanding credit to Non-Banking Finance Companies, or NBFCs, and Housing Finance Companies. This will be over and above the amount of credit to NBFCs and Housing Finance Companies outstanding in their books, the central bank said in a notification.
The central bank’s actions are an attempt to increase the flow of credit to NBFCs, to which banks have been reluctant to lend of late, a problem exacerbated by the crisis at Infrastructure Leasing and Financial Services Limited. IL&FS and its subsidiaries have a combined debt of more than Rs 91,000 crore and have defaulted on multiple loan repayments in the last couple of months. However, on October 16, the National Company Law Appellate Tribunal stayed all proceedings by banks against IL&FS and its subsidiaries.
On September 24, Finance Minister Arun Jaitley had said that the government will take all measures to ensure adequate liquidity for NBFCs, mutual funds, and small and medium enterprises. Jaitley’s statement came after stock markets plunged over concerns of a liquidity crisis for some NBFCs.