Will RBI's operations ease the liquidity problem at NBFC?

Banks hold excess government securities in the form of a statutory liquidity ratio. funds in government securities.

On October 19, the Reserve Bank of India (RBI) prompted banks to lend to non-bank financial corporations (NBFCs) and housing finance companies (HFCs) in order to unclog the freeze loans from some of them.

What did RBI do to ease the liquidity of the NBFC?

The central bank encouraged the banks to authorize the transfer of funds to the NBFCs, allowing the banks to use the government securities are high quality liquid badets of level 1 equivalent to the additional loans of the bank to the NBFC and to HFCs after October 19, which will ease the requirements for the mandatory liquidity coverage ratio for banks, which will have more funds to lend. es, RBI allowed banks to lend up to 15% of their equity to a single NBFC, other than infrastructure, financing the previous 10%. The measurements are available until 31 December of this year.

RBI said banks could use government securities to calculate the CRL, which equates to loans to NBFCs and HFCs after October 19, but rising. 0.5% of their net commitments in terms of demand and time or their total deposits. This measure is expected to ease bank loans of approximately NKr 59 trillion to NBFCs and HFCs, as the system's deposits amounted to GBP 118 trillion by 28 September. The second measure should ease the restrictions on loans to a single NBFC / HFC, which will give greater leeway to large corporate lenders without breaking regulatory limits.

Do banks hold government surplus securities for this purpose?

surplus of government securities as a statutory liquidity ratio. Since the loans were slow, the banks placed surplus funds in public securities.

What is the reaction of bankers and experts?

Bankers say lenders are comfortable enough in terms of liquidity and therefore they would not want to use these incentives. They believe that the loans to the national transmission system companies are risky at the moment and that, therefore, the RBI's measures may not have a significant effect. As a result of easing the exposure limits of some NBFCs by the RBI, they claim that no bank holds 10% of its exposure to a single NBFC, and that the increase in five percentage points will not force them to lend. Experts believe that the steps are short-lived and RBI likely think that the tightening of liquidity will ease by December.

Why is bank credit important for NBFCs?

Banks are an important source of financing for NBFCs, hence the importance of granting credit could ease their liquidity crisis. According to a report by Credit Suisse, NBFCs / HFCs have in recent years seen a strong offer of funds from banks (growth of 43% compared to August) and mutual funds (35% of badets under management), which makes this badet clbad among the biggest exposures of these fund providers. Bank loans to NBFCs have increased to 6.2 percent of system loans and 20 percent of additional bank loans in recent quarters, the report said.