RBI extends NBFC securitization relaxations till 30 June

Mumbai: The Reserve Bank of India (RBI) has extended, for another six months, existing relaxations for securitization of assets by non-banking financial companies (NBFCs). The move is expected to provide NBFCs with some more breathing space to repair their broken balance-sheets by selling assets and improving liquidity.

In November 2018, the Reserve Bank of India (RBI) had first relaxed the minimum holding period (MHP) requirement for originating NBFCs, for loans of maturity above five years, to six months from 12 months earlier. The relaxation was originally given for six months till May 2019. The central bank then extended this relaxation till 31 December, 2019.

“On a review, it has been decided to extend the relaxation provided therein till 30 June, 2020,” said RBI.

The minimum holding period is the duration for which an NBFC is required to hold the loans on its book before selling them.

These relaxations were allowed after the liquidity crisis in the non-bank space following defaults by Infrastructure Leasing & Financial Services (IL&FS) in 2018. So much so that NBFCs and their mortgage lending peers relied largely on securitisation deals to raise funds. A report by rating agency Icra in October 2019 found that these two classes of non-bank lenders raised ₹2.36 trillion through the securitization route between October 2018 and September 2019.

Meanwhile, RBI has maintained it is regularly monitoring the top 50 NBFCs. “We are, wherever required, making deep dives into their books, balance sheets and other numbers and roughly these 50 NBFCs represent about 75% of the sector,” RBI governor Shaktikanta Das had said last month.

The liquidity situation of the NBFCs, Das had said, for at least a period of three months is also being monitored by RBI to see whether they have adequate coverage for their liquidity requirements in the next three months.

“The RBI wherever necessary will not hesitate to act to ensure that we do not allow any large or systemically important NBFC to collapse and have any adverse impact on the system,” he said.

According to Das, credit flow is slowly reviving to the NBFC sector and the better –performing ones are able to access funds from the market at pre-IL&FS rates. The market today, Das said, is differentiating between the good and the not-so-good NBFCs.