The Reserve Bank has said several measures taken over the last two months have eased liquidity for non-banking finance companies (NBFCs) and there is no necessity for the RBI to extend help to the sector as a “lender of last resort”.
RBI Deputy Governor Viral Acharya said the central bank is guided by the principle of addressing system-wide liquidity requirements. “The RBI also stands ready to be the lender of last resort but that is provided conditions warrant that sort of an extreme measure. In our assessment, there is no such necessity at the present,” he said .
The RBI Board, in its meeting on November 19, did not consider any proposal to boost liquidity for the NBFC despite a strong pitch by the government nominees. The RBI, which was insisting that there was enough liquidity in the system, may have baulked at such a move on fears that such a facility was likely to be misused. However, the board is expected to take a view on the liquidity support in the next board meeting on December 14. Acharya said the “sound health” of the economy, where the credit growth is comfortably above the nominal GDP growth with a fair distribution across sectors, make the RBI confident that such support will not be required. The RBI has also augmented system-wide liquidity through various moves, he said.
Acharya said the RBI has been watching developments on this front since late-August and has also been in touch with Sebi to understand the potential redemptions in the mutual fund sector.
Listing details of the measures undertaken, Acharya said banks can raise more against the collateral of government securities for on-lending to NBFCs and housing finance companies (HFCs) and the concentration limits have also been upped. The RBI has also taken measures to facilitate asset and risk transfers within the financial system. This can be considered as reintermediation across financial players or risks. “We believe this is healthy for financial stability overall,” he said.
Measures on partial credit enhancement (PCE) to aid bond raising by NBFCs and also liberalisation on the securitisation front are part of these measures, he said. These measures were taken after a showdown between the government and the RBI on the issue of liquidity in the non-banking financial sector. “Our assessment is that these measures have collectively eased the funding stress in a steady manner over the past two months. They have given the NBFCs and HFCs time and the opportunity to make their own balance sheet adjustments on both assets and liabilities side,” he said.
SLR to be cut by 150 bps over 6 quarters
Mumbai: In order to align the statutory liquidity ratio (SLR) with the liquidity coverage ratio (LCR) requirement, the RBI has decided to reduce the SLR by 25 basis points from 19.5 per cent every calendar quarter until the SLR reaches 18 per cent of the total deposits. The first reduction of 25 basis points will take effect in the quarter commencing January 2019. SLR is the portion of deposits that commercial banks will have to mandatorily invest in government securities.—ENS