Page 7 - Banking Finance June 2019

RBI CORNER

RESERVE BANK

RBI nods for extension of RBI's new norms may pressure on NBFCs margins:
legal entity identification Analysts
RBI's recently announced the draft liquidity norms for the NBFCs will hit on their
deadline
margins and returns over the medium term, observed
The Reserve Bank of India has ex-
by analysts. The proposed norms may also result into
t e n d e d
consolidation in the NBFC sector, they said.
the dead-
RBI has recently released a draft circular on Liquidity
line for
Risk Management Framework for NBFCs with an asset
Legal En-
size of Rs 100 crore. The norms will also be applicable
tity Iden-
for all Core Investment Companies (CICs) registered with the Reserve Bank.
t i f i e r
( L E I ) All non-deposit taking NBFCs with asset size of Rs 5,000 crore and above, and
all deposit taking NBFCs irrespective of their asset size, shall maintain a liquidity
codes for the purpose of participa-
buffer in terms of a liquidity coverage ratio (LCR) which will promote resilience
tion in non-derivative markets. The
of NBFCs to potential liquidity disruptions by ensuring that they have sufficient
present deadline for entities with
High Quality Liquid Asset (HQLA) to survive any acute liquidity stress scenario
net worth of more than Rs 1,000
lasting for 30 days, noted the draft norms.
crore to get the code is December
31, 2019, which was April 30, 2019. "NBFCs would have to carry low yielding assets to meet the HQLA requirement
going forward, which could exert pressure on their net margins," rating agency
While the deadline is applicable for
Icra said in a report. Financial services company Jefferies India noted, "LCR norms
the entities with net worth Rs. 200
would affect margins and returns in the medium term, especially for housing
crore and Rs. 1,000 crore; the dead-
finance companies (HFCs), given higher asset liability management (ALM) mis-
line has been extended to March 31,
match." Stringent liquidity norms should induce stronger ALM discipline among
2020 for entities with net worth of
NBFCs, it added.
less than Rs 200 crore.
In a calibrated manner, the norms will be implemented over a period of four
"Based on the feedback and re-
years starting from April 2020 and going up to April 2024. The LCR requirement
quests received from market partici-
shall be binding on NBFCs from April 1, 2020 with the minimum HQLAs to be
pants, and with a view to enable
held being 60 per cent of the LCR, progressively increasing to the required level
smoother implementation of the LEI
of 100 per cent by April 01, 2024.
system in non-derivative markets,
Icra further said that most large and better managed NBFCs have showed their
the timelines for implementation
on-book liquidity post September 2018 and carry adequate sanctioned credit/
(phase I and phase II) are extended,"
funding lines, with which they could meet the 100 per cent LCR requirement,
the RBI said.
even after stressing the outflows by 115 per cent and inflows by 75 per cent.
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