RBI steps in to ease credit crunch at NBFCS

RBI ALLOWED BANKS TO LEND UP TO 15% OF THEIR CAPITAL FUNDS TO A SINGLE NBFC, ALLOWING THEM MORE HEADROOM FROM 10%

MUMBAI: The Reserve Bank of India (RBI) on Friday incentivized bank lending to non-banking financial companies (NBFCS) by easing liquidity norms and increasing the ceiling for lending to a single NBFC until December 31.

The central bank allowed banks to use government securities as level 1 high quality liquid asset (HQLA) equivalent to the bank’s incremental lending to NBFCS and housing finance companies (HFCS) after October 19, 2018. This will be limited to 0.5% of the bank’s net demand and time liabilities (NDTL) or its total deposits. This is expected to facilitate additional lending of ₹59,000 crore to NBFCS.

This measure takes the total carve-out from statutory liquidity ratio (SLR) for computing liquidity coverage ratio (LCR) to 13.5%.

At a time when lending is slow, banks have been parking excess funds in government securities. Currently banks hold more than 29% of their NDTL in government securities as SLR while RBI mandated them to hold at least 19.5%.

“It has been decided that, with immediate effect, banks will be permitted to also reckon government securities held by them up to an amount equal to their incremental outstanding credit to NBFCS and Housing Finance Companies (HFCS), over and above the amount of credit to NBFCS and HFCS outstanding on their books as on October 19, 2018, as Level 1 HQLA under facility to avail liquidity for liquidity coverage ratio (FALLCR) within the mandatory statutory liquidity ratio (SLR) requirement,” said RBI.

The central bank has also allowed banks to lend up to 15% of their capital funds to a single NBFC, allowing them more headroom from 10% earlier. “The single borrower exposure limit for NBFCS which do not finance infrastructure stands increased from 10% to 15% of capital funds, up to December 31, 2018,” it said. However, bankers believe this would not be of much help as banks are quite comfortable in terms of liquidity and, therefore, would not want to use these incentives.

“Liquidity is not a concern for us and we are comfortable with our LCR. The lending to NBFCS is more about risk perception than regulatory incentives,” said a senior banker at a public sector bank. No bank has exposure of 10% of their capital to a single NBFC and, therefore, the increase of five percentage points will not push them to lend, the banker said.