The Reserve Bank of India (RBI) on Friday announced more steps to restart the flow of credit to non-banking financial companies (NBFCs) in the wake of complaints from NBFCs about non-availability of funds. According to the RBI, the single borrower exposure limit for NBFCs which do not finance infrastructure will be raised from 10 per cent to 15 per cent of capital funds, up to December 31, 2018.
The RBI also 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 (LCR) 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.
“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 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 FALLCR within the mandatory SLR requirement,” RBI said in a notification. 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. The additional window will be available up to December 31, 2018, the RBI notification said.
Bank credit to NBFCs had grown rapidly over the last two years, enabling NBFCs to grow rapidly. However, recent incidents such as the IL&FS group defaults has left banks nervous about lending to NBFCs. On the other hand, market funding to NBFCs has also dried out due to outflows from debt mutual funds.