Cash-strapped non-banking finance companies, or NBFCs, may finally see their liquidity situation ease with the Reserve Bank of India today allowing banks to raise money through a special window for on-lending to this sector.
The RBI said it would provide banks easy access to the liquidity adjustment facility window through a relaxation in the statutory liquidity ratio, or SLR, of up to 1.5 per cent of their net demand and time liabilities to access funds. Banks may raise up to Rs 60,000 crore at the new repo rate of 7.5 per cent from the RBI and extend loans to NBFCs at around 11 per cent.
“The risk weight is higher when we lend to NBFCs. So, we need to pass on the additional cost,” said a public sector bank chief.
Still, NBFCs hope to get some funds. They were not getting much in the last 45 days.
Unlike a similar facility for mutual funds that was open for 14 days, the LAF window for NBFCs does not have a closing date. “The measures seem adequate, but we have to watch how banks react,” said Reliance Capital CEO Sam Ghosh.
According to IDFC Executive Director Vikram Limaye, “Although the previous cuts have actually not gone very far, the combination of measures should hopefully give NBFCs greater access to funds.”
Shriram Transport Finance MD R Sridhar said the RBI’s latest moves would help asset financing NBFCs improve their asset growth. “With the reduction in the repo rate, banks will slowly start lowering interest rates. On the one hand, the availability of funds will improve and, on the other, the cost of funds will come down,” he added.
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ICICI Bank Joint Managing Director & Chief Financial Officer Chanda Kochhar said the RBI’s efforts would help NBFCs. “The liquidity problem is affecting everyone, but the impact may be more on intermediaries, which cannot accept public deposits,” she said.
Bank of India Chairman & Managing Director T S Narayanasami said: “We are willing to lend, especially now that the margins will be better thanks to the cumulative 150 basis point cut in the repo rate and the cash reserve ratio.”
Yesterday, on a temporary basis, the RBI had permitted non-deposit-taking NBFCs to raise short-term foreign currency borrowings of up to $10 million through the approval route. This amount, however, is seen as too small. Srei Infrastructure Finance Vice-Chairman & MD Hemant Kanoria said the facility should be extended to deposit-taking NBFCs, too.