Reserve Bank releases draft circular on NBFC liquidity risk management framework after IL&FS, DHFL cash crunch
The Reserve Monetary establishment of India (RBI) on Friday issued a draft spherical on liquidity risk administration framework for non-banking financial corporations and core funding corporations.
The central bank acknowledged that the present developments throughout the NBFC sector pointed to the need for a stronger Asset Obligation Administration (ALM) framework throughout the NBFCs.
“Whereas quite a lot of the current regulatory prescriptions related to NBFCs on ALM framework have been updated/recast, certain new choices have been added. Amongst others, the draft suggestions cowl utility of generic ALM concepts, granular maturity buckets throughout the liquidity statements and tolerance limits, liquidity risk monitoring software program and adoption of the “stock” technique to liquidity,” RBI acknowledged in a notification on Friday.
The draft proposes to introduce Liquidity Safety Ratio (LCR) for all deposit-taking NBFCs and non-deposit taking NBFCs with an asset measurement of Rs 5,000 crore and above, the central monetary establishment acknowledged.
The RBI is trying to find public suggestions on the draft framework by 14 June, 2019. The proposal is to implement it in a calibrated technique by means of a glide path over a interval of four years commencing from April 2020 and going as a lot as April 2024, RBI acknowledged.
On Wednesday, sources acknowledged RBI was not in favour of providing specific credit score rating window to the NBFC sector to tide over the liquidity crunch as a result of the cash crunch phenomenon is not going to be systemic.
Commerce avid gamers and authorities think-tank NITI Aayog made a case for giving specific credit score rating window for non-banking financial corporations (NBFCs) going via liquidity crunch following default by a bunch of corporations of IL&FS since September 2018.
Many NBFCs, along with DHFL and Indiabulls Finance, obtained right here beneath excessive liquidity pressure compelling them to hold down their reliance on enterprise papers.
Ever as a result of the IL&FS catastrophe erupted, banks have been averse to lending to the sector, which has put them in a great spot. There are concerns that NBFCs may run out of money, which is ready to end in defaults.
In response to the sources, the Reserve Monetary establishment of India (RBI) is of the view that individual window is not going to be required as of now primarily based totally on their analysis. The central monetary establishment feels that the cash crunch is not going to be a sector-specific phenomenon nonetheless restricted to some large NBFCs which have over-leveraged on account of aggressive lending.
With PTI inputs
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