(Mint file)
(Mint file)

Central bank opens liquidity tap to help stressed shadow banks

  • RBI increases the ceiling for a bank’s exposure to a single NBFC to 20% of its tier I capital from 15% earlier
  • Bank lending to registered NBFCs for on-lending to agriculture up to 10 lakh; micro and small enterprises up to 20 lakh; and housing up to 20 lakh per borrower to be classified as priority sector lending

MUMBAI: The Reserve Bank of India (RBI) on Wednesday announced two key measures to help stressed non-banking financial companies (NBFCs) raise funds from banks.

First, the central bank increased the ceiling for a bank’s exposure to a single NBFC to 20% of its Tier I capital from 15% earlier. Second, it allowed bank lending to NBFCs excluding microfinance institutions for on-lending to certain sectors to be classified as priority sector loans.

“Under the revised guidelines on large exposure framework (LEF) that came into effect from 1 April 2019, a bank’s exposure to a single NBFC is restricted to 15% of its Tier I capital, while for entities in the other sectors, the exposure limit is 20% of Tier I capital of the bank, which can be extended to 25% by banks’ boards under exceptional circumstances," RBI said on Wednesday, adding it has been decided to raise a bank’s exposure limit to a single NBFC to 20% of a bank’s Tier I capital.

RBI also said that to boost credit flow to certain priority sectors, bank lending to registered NBFCs for on-lending to agriculture (investment credit) up to 10 lakh; micro and small enterprises up to 20 lakh; and housing up to 20 lakh per borrower will be classified as priority sector lending.

Detailed guidelines on these above steps will be issued by the end of the month, RBI said.

The measures aim to address some of the pain points in the economy. Agriculture makes up about 17% of the economy but is the largest employer and has been under stress for some time, affecting livelihoods. Small businesses, on the other hand, contribute significantly to the value addition in the manufacturing sector and contribute to exports. Housing, a major job-creating industry, too has been under a prolonged slump, leading to job losses.

The government has been trying to promote affordable housing in recent months to stimulate this industry.

After increasing the tax break available to individuals buying affordable homes in the Union budget, finance minister Nirmala Sitharaman last week announced National Housing Bank’s (NHB) fresh liquidity window for housing finance companies. The scheme called Liquidity Infusion Facility (LIFt) offered 10,000 crore for housing financiers for lending to individuals for purchasing affordable homes.

RBI governor Shaktikanta Das said on Wednesday that the RBI has identified 50 large non-banks, including some housing finance companies, and is monitoring them. “It is our endeavour to ensure that there is no collapse of any large systematically large NBFCs," he added.

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