INSUBCONTINENT EXCLUSIVE:
How does the budget seek to enhance NBFC liquidity?The budget offered NBFCs a Rs 1-lakh crore lifeline
The government would stand part-guarantor on loans purchased by state-run banks for six months
In other words, banks are encouraged to purchase securitised loan pools from NBFCs up to Rs 1 lakh crore, while the government would bear
the first loss of up to 10 per cent of the assets, if any.
2
What did the RBI do to strengthen the impact of the budget proposal?RBI has taken steps to ensure flow of sufficient liquidity for banks so
that they are able to purchase loan pools from NBFCs.
3
How will that be Possible?RBI has decided to frontload the FALLCR scheduled to increase by 0.5 per cent each in August and December 2019 and
permit banks to recognise with immediate effect the increase in FALLCR of 1 per cent of each bank’s NDTL (net demand and time liability)
The move is expected to free up resources at banks for meeting the incremental loan demand.
4
How does it Work?FALLCR, or Facility to Avail Liquidity for Liquidity Coverage Ratio, is a facility for banks to carve out a portion of
their bond holdings in statutory liquidity ratio to be counted for the so called liquidity coverage ratio (LCR), a regulatory norm.
The LCR
refers to the proportion of highly liquid assets held in government securities by banks to ensure their ability to meet short-term
Banks pledge securities whenever there is a shortfall.
As RBI increased FALLCR by 1 per cent with immediate effect, Banks can avail
additional liquidity of Rs 1,34,000 crore
These liquid assets can be used to purchase NBFC loan pools over and above their regular lending to NBFCs, including housing finance