“We are monitoring how these NBFCs cope with the commercial paper redemption pressures and that will be a crucial criterion for additional lending," said the CFO.
Commercial banks have three kinds of exposures to an NBFC: subscribing to their commercial papers, sanctioning a loan or a line of credit, and buying existing loans from them. According to RBI data, outstanding bank credit to all industry stood at ₹ 27.01 trillion in the fortnight ended 28 September, up 2.6% from the year-ago period. Loans to NBFCs stood at ₹ 5.46 trillion on the same fortnight, up 41.5% from the same period last year. This is the latest disaggregated sectoral data available from RBI.
Data compiled by Bloomberg showed there was a liquidity surplus in the first half of August, while the second half saw a deficit. However, since 8 October, system liquidity has been in a deficit mode with the deficit widening to as much as ₹ 1.46314 trillion on 22 October and settling at ₹ 1.15998 trillion on 30 October.
A press release from the central bank, dated 1 October, had said: “The Reserve Bank of India (RBI) had telegraphed in its previous post-monetary policy press conferences that the system liquidity will move into deficit in the second half of the fiscal year and that the evolving liquidity conditions shall determine its choice of instruments for both transient and durable liquidity management."
A managing director and chief executive officer at a mid-size bank said on the condition of anonymity the bank is not lending to infra-financing NBFCs after the IL&FS crisis. He said the bank is not averse to lending to NBFCs but has adopted a calibrated approach on the sector.
“Our bank is lending only to NBFCs that finance short-term assets and housing, a more secured class," said the bankers. That apart, it has doled-out incentives to banks to allow flow of funds to NBFCs. It has allowed banks to use government securities as level 1 high-quality liquid assets equivalent to the bank’s incremental lending to NBFCs and HFCs after 19 October. This will ease the mandatory liquidity coverage ratio requirements for banks and they will have more funds to lend. Besides, RBI has allowed banks to lend up to 15% of their capital funds to a single non-infra funding NBFC from the earlier 10%. The measures are available up to 31 December this year.