Liquidity Situation in NBFCs

As per Reserve Bank of India (RBI)’s Financial Stability Report (FSR), released on June 27, 2019, liquidity stress in NBFCs was reflected in the third quarter of the last financial year due to an increase in funding costs and difficulties in market access in some cases. Further, despite this, better-performing NBFCs with strong fundamentals were able to manage their liquidity even though their funding costs moved with market sentiments. FSR also states that better-performing companies continue to raise funds, while those with asset-liability management and/or asset quality concerns are subject to higher borrowing costs.

RBI has informed that it is closely monitoring the liquidity position of NBFCs and, with a view to strengthen the NBFCs and maintain stability of the financial system, it has been taking necessary regulatory and supervisory steps, including, inter alia, the following:

1. Open market operations were conducted, in addition to regular Liquidity Adjustment Facility auctions, to inject liquidity in financial markets.
2. RBI permitted special dispensation to banks up until 31st March 2019, whereby their incremental credit to NBFCs and Housing Finance Companies (HFCs) after October 19, 2018, could be treated as high quality liquid assets for calculation of Liquidity Coverage Ratios.
3. The single-borrower exposure limit for NBFCs that do not finance infrastructure was increased from 10 percent to 15 percent of capital funds, up to 31st March 2019.
4. Banks were permitted to provide partial credit enhancement for non-deposit accepting systematically-important NBFCs registered with RBI and HFCs registered with National Housing Bank as per guidelines.
5. RBI reduced the minimum average maturity requirement for External Commercial Borrowings in the infrastructure space raised by eligible borrowers from five years to three years.
6. To encourage NBFCs to securitise/assign their eligible assets, the Minimum Holding Period requirement for originating NBFCs was relaxed till December 2019.
7. NBFCs were provided regulatory concessions to enable restructuring of MSME loans.
8. NBFCs with assets over ₹ 5,000 crore have been asked to appoint a Chief Risk Officer to improve the standards of risk management.

As per RBI, liquidity in the financial system turned into surplus in early June 2019, after a large injection of durable liquidity by RBI in the previous months. The liquidity surplus/deficit in the banking system is reflected in the net amount absorbed/injected by RBI under the Liquidity Adjustment Facility (LAF) and includes Marginal Standing Facility (MSF). As per RBI data, the daily net liquidity progressively improved from an average daily deficit of ₹ 70,004 crore during April 2019 to average daily deficit of ₹ 33,400 crore during May 2019, and to average daily surplus of ₹ 51,710 crore during June 2019. As of July 3, 2019, the liquidity surplus had reached a level of ₹ 1,39,265 crore.

As per RBI input, RBI does not maintain data on bond refinance by NBFCs.

This was stated by Shri Anurag Singh Thakur, Minister of State for Finance & Corporate Affairs in a written reply to a question in Lok Sabha.