Smaller NBFCs request liquidity assistance from RBI

Reserve Bank of India

In a written communication sent to the Reserve Bank of India (RBI), Smaller Non-Banking Finance Companies (NBFCs) have requested for liquidity support. In the letter they have mentioned that they facing continual liquidity challenges. In a letter addressed to RBI Governor Shaktikanta Das, Finance Industry Development Council (FIDC), a representative body of NBFCs, stated that the announcements made by the RBI on May 5 have addressed liquidity needs of small microfinance institutions MFIs, but NBFCs could get the benefits and missed out of it.

FIDC wrote that, “NBFCs are important drivers of credit to self-employed informal segment of borrowers and therefore, immensely improve the outreach of formal banking to the under-banked segments of customers thereby significantly contributing to the goal of financial inclusion. NBFCs can also play a very significant role in helping them recommence their economic activities as the country emerges from the pandemic. Small NBFCs play an important role in providing the last mile credit deep into the bottom of the pyramid segment of the society. They also play a “churning” role, when it comes to asset-based lending like automobiles or machinery, since a majority of them lend against used assets.”

“The RBI had announced several rounds of long term repo operations (“TLTRO”) with the view to increasing credit flow from banks to NBFCs. Data on TLTRO 1.0 shows that around 88% of the funds raised by banks through this window were invested in/advanced to NBFCs having a credit rating of AA and above. Even under TLTRO 2.0 where it was mandated by RBI that at least 50% of the funds raised by banks be advanced to/invested in small and medium NBFCs, we saw a tepid response from banks towards lending to smaller NBFCs. Thus, TLTRO has not proved successful in providing adequate bank credit to small and medium NBFCs and there is a need for a specialised window to be created for them,” it added.

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