Tighter ALM norms for NBFCs in offing

Rain of new Indian currency after denomination on dark background

Rain of new Indian currency after denomination on dark background  


To be similar to those of banks: RBI

The liquidity crisis at the Infrastructure Finance and Leasing Services (IL&FS) has prompted the Reserve Bank of India (RBI) to tighten the asset-liability management (ALM) framework for non-banking finance companies (NBFCs) and bring them on par with the commercial banks.

“The Reserve Bank intends to strengthen the ALM framework for NBFCs on lines similar to that for banks and harmonise it across different categories of NBFCs,” the banking regulator said in its Trends and Progress of Banking report.

NBFC default

Without naming IL&FS, the RBI said the recent experience of debt default of a systemically-important NBFC highlighted the vulnerability and need for strengthening regulatory vigil on the sector in general and on ALM framework in particular. At the same time, the RBI assured that the inherent strength of the sector, coupled with the RBI’s ‘continuing vigil on the regulatory and supervisory front, would ensure that the growth of the sector is sustained and liquidity fears are allayed.’

The RBI has admitted that the ALM instructions for registered core investment companies — like IL&FS — are minimal.

The RBI noted that the NBFC sector, with a size of 15% of commercial banks’ balance sheets, had been growing robustly in the recent years, and provided an alternative source of funding in the face of slowing bank credit.

“The financial performance of NBFCs, including profitability, asset quality and capital adequacy, improved during 2017-18 as they weathered the transient effects of demonetisation and GST implementation,” the RBI said.

RBI noted that for non-deposit taking and systemically important NBFCs, the major sources of resource mobilisation have been debentures and bank borrowings with the latter being preferred during 2017-8 and in 2018-19. The share of commercial papers, which declined during 2017-18, turned around in the first half of 2018-19 partly replacing the reduction in share of debentures.

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Printable version | Jan 29, 2020 8:44:50 PM |

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