Even as the statutory liquidity ratio (SLR) required to be maintained by non-banking finance companies (NBFCs) stands hiked to 12.5 per cent with effect from April 1, a large section of mid-sized NBFCs have been selling government securities in the market.
This phenomenon has been largely due to the stipulation laid down by the Reserve Bank of India of linking the deposit taking capacity to credit rating.
NBFCs which have more deposits than their ratings permit will have to refund excess deposits and scale down its operations.
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This implies that the proportion of the SLR to public deposits has gone up and in some cases, it is even in excess of the 12.5 per cent requirement, leading to offloading of government securities.
Sources said there have also been a number of NBFCs that have decided to withdraw their ratings and get out of fund-based activities since RBI tightened the screw on non-banking finance companies in January. This, too, has predictably led to offloading of government securities in the market.
NBFCs are also resorting to conversion of public deposits to secured debentures, as the latter falls outside the definition of public deposits as per the new NBFC policy announced by the RBI effective from January this year.
Again, this action has led to a fall in public deposit figure of NBFCs and hence, the current SLR maintained by them is more than sufficient.
There has anyway been a run on the public deposits after the CRB scam broke out in May 1997 which was followed by downgrading of series of leading NBFCs during the same calendar year. Consequently the amount that a NBFC had to provide for SLR dropped steeply, pointed out market sources.
Only the triple A rated companies are not selling government securities while the rest are not buying if not selling, said broker at the National Stock Exchanges wholesale debt segment.
Earlier, equipment leasing and hire purchase finance companies had to maintain an SLR of 10 per cent of the regulated deposits outstanding as on September 30,1997, while loan/investment companies had to maintain this at 5 per cent.
According to the revised guidelines for NBFCs announced by the RBI, all NBFCs (except residuary NBFCs) should maintain an SLR of 12.5 per cent on public deposits from April 1, 1998 and 15 per cent from April 1,1999.