RBI asks NBFCs to maintain high-quality liquid assets

RBI asks NBFCs to maintain high-quality liquid assets
MUMBAI, MAY 25 (AGENCIES) | Publish Date: 5/25/2019 11:28:53 AM IST

The Reserve Bank of India (RBI) on Friday said from April 1 next year large non-banking financial companies (NBFCs) should maintain a liquidity coverage ratio (LCR) in line with banks and carry enough collateral that can be used for liquidity needs.

Even as the draft offered no hint of a possible liquidity window for the troubled NBFC sector, the central bank said it remained “committed to promote a robust, vibrant and well-functioning NBFC sector”.

“An NBFC should have sufficient collateral to meet expected and unexpected borrowing needs and potential increases in margin requirements over different timeframes,” the RBI said in a draft circular, in which it asked the firms to have enough high-quality assets that would keep them liquid for at least 30 days.

An NBFC must actively manage its collateral positions, differentiating between encumbered and unencumbered assets, and monitor such assets so that they can be mobilised in a timely manner. 

All NBFCs must have contingency funding plans for responding to severe disruptions and liquidity positions should be disclosed to the public for investors.

Although the liquidity rules were proposed for all NBFCs, for NBFCs with assets above Rs 5,000 crore and deposit-taking NBFCs, the LCR was mandatory.

The RBI said in addition to structural and dynamic liquidity needs, a stock approach will also have to be maintained to gauge liquidity needs. NBFCs were asked to maintain tools that would generate early warning for concentration, counterparty, instrument, currency risks etc.

Keki Mistry, the vice-chairman and chief executive officer, HDFC, said: “Since the IL&FS crisis, there has been nervousness in the market. Over the past few months, many NBFCs have not been able to borrow from markets, including banks. 

With the RBI bringing in these guidelines to manage asset-liability mismatches, lenders will get more confidence.” Gagan Banga, managing director, Indiabulls Housing Finance Ltd, said: “The regulations are extremely good and the sector needs to be regulated well. The sector can thrive if the perception is that it is well regulated.” 


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