RBI : Bank lending to NBFC’s to ease liquidity crunch

Chamber of Commerce have supported the RBI decision to incentivise banks to enhance their lending to NBFCs, saying the step will help them in tackling liquidity crunch. The RBI allowed the banks to use Government securities equivalent to their incremental credit to non-banking financial companies (NBFCs) for a three-month period to meet their liquidity coverage ratio (LCR) requirements.

The provision will allow banks to free up Rs 50,000-60,000 crore of liquidity which banks can lend to NBFCs till December 31.

“This shall also send a message that the recent developments do not indicate any systemic problem but it is merely a case of sentiments having gone wrong after one of the big NBFCs defaulted,” Chamber said.

The industry body said the whole issue of asset liability mismatch is more relevant in case of long-term lending companies like the housing finance companies and infra financing NBFCs.

“A typical NBFC model is a retail lending model with short tenures of 2-5 years and small ticket sizes where asset liability mismatch is not a concern. NBFCs have shown impressive growth for the last few years maintaining a high capital adequacy ratio which is higher than the minimum prescribed levels. This growth has also been healthy as reflected in better asset quality,” Chamber said.