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To help further ease the liquidity condition of non-bank lenders, the Reserve Bank of India changed the holding period of the securitized loan portfolios.
In a notice issued Thursday, the Reserve Bank of India indicated that the minimum holding period for loans from non-bank finance companies will now be six months or two quarters. Previously, the detention period was 12 months.
The revised rules apply to loans with an original maturity of more than 5 years. This will particularly help housing finance companies that have longer-term loans.
However, the RBI increased the amount of the stake from 10% to 20% of the loan portfolio. This has been done so that NBFCs selling loan portfolios have adequate skin in the game even after securitization.
The easing will remain in place for a period of six months from the date of the circular, the RBI said.
The purpose of this measure is to encourage NBFC companies to more actively securitize loan portfolios.
A failure of AAA-rated leasing and financial services undermined credit markets in India and led to a tightening of NBFC's liquidity. As the market improved in November, non-bank lenders are now more dependent on bank credit lines and securitization to generate cash.
Securitization volumes increased to 18,000 crore in October 2018, the ICRA rating agency said in a statement on November 13. These funds helped the NBF companies to cover part of the 78,000 crores of rupees in the commercial paper that was to be repaid in October 2018.
So far this year, securitization operations of 83,800 crores have have been reported.
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