Mumbai: In an effort to ease current liquidity crunch, the Reserve Bank has allowed banks to use government securities equivalent to their incremental credit to non-banking lenders for a three-month period starting Saturday to meet their liquidity coverage ratio (LCR) needs.
The provision, which can free Rs 50,000-60,000 crore of liquidity which banks can lend to NBFCs, will be available to banks up to 31 December, the RBI said in a circular.
Many NBFCs and industry analysts, however, described the move as too little and too late, saying it will not help much, especially those NBFCs which are into home/auto loans. The only beneficiary will be those into short-term consumer loans as well as microfinance players, they said.
This was clear from the way market reacted to the sectoral stocks with the second largest pureplay home loan player Indiabulls Housing Finance, which has heavy exposure to developers, plunging over 17 per cent and the market leader HDFC shedding over 4 per cent and another key player DHFL tanking over 10 per cent.
As against this Bajaj Finance, which is consumer oriented, closed only 0.4 per cent down on a day when the Sensex plunged 1.33 per cent and the Nifty tanked over 1.4 per cent. According to analysts, the move has the potential to free up Rs 50,000-60,000 crore of liquidity which banks can lend to NBFCs.
“With immediate effect, banks will be permitted to also reckon government securities held by them up to an amount equal to their incremental outstanding credit to NBFCs and housing finance companies, over and above the amount of credit to NBFCs and HFCs outstanding on their books as on 19 October, as level 1 high quality liquid assets (HQLA) under the facility to avail liquidity for liquidity coverage ratio (FALLCR) within the mandatory statutory liquidity ratio (SLR) requirement,” the RBI circular issued Friday morning said.
It will be in addition to the existing FALLCR of 13 per cent of net demand and time liabilities (NDTL), but is limited to 0.5 per cent of a bank’s NDTL, the RBI said.
The move will facilitate banks to lend more to NBFCs and housing finance companies (HFCs), which are facing liquidity crisis following defaults by Infrastructure Leasing & Financial Services (IL&FS) and its group entities.