Page 5 - Banking Finance December 2019

BANK UPDATE

BANKING

NEWS
NEWS
NEWS
NEWS
NEWS

NBFCs will have to main- SBI reduces deposit rates, lending rates

tain liquid reserves SBI has recently reduced its marginal cost of fund based lending rate (MCLR) by
5 basis points across all tenors, effective from No-
In order to ensure that non-banking vember 10, and sharply slashed the deposits pric-
finance com- ing between 15 and 75 basis points. This is the sev-
panies (NBFCs) enth consecutive cut in lending rates by the bank
have a buffer this fiscal.
for any unex-
pected re- With this reduction, the one year MCLR, to which
quirements, they will now have to most of its loan prices are linked, will come down
maintain liquid reserves. to 8%, the bank said in a statement.
The bank also revised its interest rates on term deposits on account of adequate
The new norms are a fallout of the
liquidity in the system. The new deposit rates will also be effective from Novem-
crisis in the sector following defaults
by large firms like IL&FS Financial Ser- ber 10.
vices. The liquidity regulations an- It has reduced interest rate on retail term deposit by 15 basis points for one
nounced by the RBI, will apply to most year to less than two years' tenor.
NBFCs like the ones lending to real es-
tate developers and retail consumers New norms built under IBC to govern rescue of non-
for housing, vehicle and microfinance bank lenders
loans. The only NBFCs exempt from
According to IBBI chief M S Sahoo, the Insolvency and Bankruptcy Code has a
this will be pure-play investment com-
provision for resolution of financial service providers and
panies and government bond dealers.
there is a thinking that such a solution could be looked
The liquid reserves have to be in high- at till the FRDI legislation is in place.
quality assets like government bonds, The Financial Resolution and Deposit Insurance (FRDI)
debt securities or actual cash that is Bill would provide a dedicated framework for financial
adequate to fund 30 days of opera- service providers.
tions. The presence of liquid reserves
will prevent an NBFC from going into Sahoo said the Code has Section 227 that allows the gov-
a default spiral if some inflows get de- ernment to notify certain financial service providers for
layed. There have been instances of the purpose of insolvency resolution proceedings in the manner as may be pre-
NBFCs being downgraded and having scribed.
their loans recalled after they failed "It is possible to resolve some financial service providers at least those which
to meet an instalment to a lender. resemble normal corporate debtors," he added.

BANKING FINANCE | DECEMBER | 2019 | 5