Following straight the modules of Budget 2019, RBI provides banks with additional liquidity for NBFCs and HFCs

Mumbai, July 8: Viewing to enable the banks to deal with the NBFCs and HFCs issue effectively, the Reserve Bank of India has on July 7 decided to provide required liquidity backstop to the banks against their excess G-sec holdings.

 

This is after the Finance Minister in the Union Budget announced that the NBFCs that are fundamentally sound should continue to get funding from banks and mutual funds without being unduly risk averse.

 

“Non-Banking Financial Companies are playing an extremely important role in sustaining consumption demand as well as capital formation in small and medium industrial segment. For purchase of high-rated pooled assets of financially sound NBFCs, amounting to a total of Rs 1 lakh crore during the current financial year, the NDA government will provide one time six months' partial credit guarantee to Public Sector Banks for first loss of up to 10%”, she said.

 

In addition to this, the RBI has also decided to frontload the Liquidity Coverage Ratio scheduled to increase by 0.5 per cent each in August and December 2019 and permit banks to reckon with immediate effect, to the extent of incremental outstanding credit to NBFCs and Housing Finance Companies, which will ultimately enable the banks to avail additional liquidity of Rs 1,34,000 crores.

 

As articulated during the post-MPC media conference on June 6, 2019, the RBI has been closely monitoring top NBFCs, identified on the basis of their size and credit behaviour. Over the past six months or so, the Reserve Bank has also infused adequate liquidity in to the system through OMOs, currency swaps, further phasing increase in facility to avail liquidity for Liquidity Coverage Ratio.