Viewing to promote a vibrant NBFC sector, RBI steps up to manage Liquidity Risk Management for Core Investment firms

News Bharati    25-May-2019
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Mumbai, May 25: Needless to say, being committed to promote a robust, vibrant and well-functioning NBFC sector, the Reserve Bank of India has released a draft circular on ‘Liquidity Risk Management Framework for Non-Banking Financial Companies (NBFCs) and Core Investment Companies (CICs)’ to be adopted by all deposit taking NBFCs, non-deposit taking NBFCs with an asset size of ₹ 100 crore and above, registered with the Central Bank.
 
 
The said draft proposes to introduce Liquidity Coverage Ratio (LCR) for all deposit taking NBFCs; and non-deposit taking NBFCs with an asset size of ₹ 5000 crore and above. “With a view to ensuring a smooth transition to the LCR regime, the proposal is to implement it in a calibrated manner through a glide path over a period of four years commencing from April 2020 and going upto April 2024”, the statement read.
 
“While some of the current regulatory prescriptions applicable to NBFCs on Application Lifecycle Management (ALM) framework have been recast, certain new features have been added. Among others, the draft guidelines cover application of generic ALM principles, granular maturity buckets and adoption of the stock approach to liquidity”, the statement added.
 
The Non-Banking Financial Companies (NBFCs) play an important role in the financial system of the country, particularly in delivering credit to the last mile, including the retail as well as MSME sectors.
 
NBFCs’ ability to perform their role effectively and efficiently requires them to be financially resilient, well-regulated and properly governed so that they retain the confidence of all their stakeholders including their lenders and borrowers.
 
The Reserve Bank has always endeavoured to provide and modulate a regulatory architecture consistent with these objectives. In this context, an analysis of the recent developments in the NBFC sector pointed to the need for a stronger Asset Liability Management (ALM) framework in the NBFCs.