Mumbai: In a move that will further dampen sentiment for non-bank finance companies even as it aims to improve their liquidity, the Reserve Bank of India issued draft norms on liquidity risk management for all large NBFCs. The draft norms focus on asset-liability management, and introduce a liquidity coverage ratio.

The draft is applicable to all deposit taking NBFCs, non-deposit taking NBFCs with assets over Rs 1 bn, and all core investment companies. The RBI has sought responses on the draft norms by Jun 14. In what has come as a surprise for many, the RBI has extended the concept of Liquidity Coverage Ratio (LCR) to all deposit taking NBFCs and non-deposit taking non-bank lenders with an asset size of Rs 50 bn and above.

In a phased manner, LCR was imposed on banks globally under Basel III norms, and RBI suggests a phased rollout for NBFCs. According to the draft, NBFCs will have to hold a liquidity coverage buffer, comprising high quality liquid assets that can be monetised in case of a liquidity crisis, over four years.

NBFCS will have to ensure they hold 60% of the proposed coverage ratio as on April 2020, which will progressively increase to 70% a year later, and 80% on April 2022, 90% in April 2023 and fully implemented with 100% ratio achieved with effect from April 2024.