RBI’s move to increase credit flow to NFBCs and HFCs
The Reserve Bank on Friday announced more measures to increase liquidity flows to the non-banking financial companies. The RBI permitted banks to use government securities equal to their incremental outstanding credit to NBFCs, over and above their outstanding credit to them as on October 19, to be used to meet liquidity coverage ratio requirements.
The move will help provide liquidity to housing finance companies (HFCs) and non-banking finance companies (NBFCs) which have come under pressure following series of default by IL&FS group companies.
This will be in addition to the existing FALLCR of 13 per cent of total deposits and limited to 0.5 per cent of the bank’s total deposits.
Liquidity coverage ratio refers to highly liquid assets that financial institutions need to hold in order to meet short-term obligations.
“With this move, the RBI has now made a proactive attempt to boost credit flows to NBFCs and it is a positive move per se. Banks are already grappling with the problem of NPA, and have consciously reduced their exposure towards real estate. The current IL&FS crisis has further complicated the liquidity crisis in the system and every lender is taking extra precautions while disbursing capital to NBFCs and HFCs, including banks. In the current background where real estate sales have been extremely slow and a substantial amount of projects are running behind schedule, banks might not be willing to lend to NBFc and HFCs. However, the NBFCs with strong track records might certainly get some respite from the banks,” said Shobhit Agarwal, MD & CEO – ANAROCK Capital
‘’In the backdrop of the NBFC liquidity crisis, credit flow to the real estate sector has been squeezed. This measure by the central bank is aimed at easing credit flow to NBFCs, which is welcome. However, its impact still depends on banks’ confidence to lend to this segment in the current environment.’’ Said Shishir Baijal, Chairman & Managing Director, Knight Frank India.