Lok Sabha Question No. 2280 (UNSTARRED), answered on 2019-12-02
Subject: NBFCs Liquidity Buffer
Ministry: FINANCE
Asked by: Nama Nageswara Rao

## GOVERNMENT OF INDIA MINISTRY OF FINANCE

## LOK SABHA UNSTARRED QUESTION NO-2280

ANSWERED ON-2.12.2019

## NBFCs LIQUIDITY BUFFER

## 2280. SHRI NAMA NAGESWARA RAO:

Will the Minister of FINANCE be pleased to state:

(a)  whether  the  Government  has  taken  any  steps  to  ensure  that  Non-Banking  Financial Corporations (NBFCs) maintain liquidity buffer during the last two years, if so, the details thereof and if not, the reasons therefor;

(b)  whether as per the  new rules,  NBFCs will have to keep high quality assets like cash, Government securities and marketable securities issued or guaranteed by foreign sovereigns to tackle any risk or shock, if so, the details thereof; and

(c) whether any initiative or review was undertaken by the Government to know the status of  NBFCs  in  the  country  in  the  light  of  recent  economic  slowdown,  if  so,  the  details thereof?

## ANSWER

## THE MINISTER OF STATE IN THE MINISTRY OF FINANCE

## (SHRI ANURAG SINGH THAKUR)

(a):  Reserve  Bank of India (RBI) has apprised that in respect of maintenance of liquidity buffer by NBFCs, Non-deposit taking NBFCs having asset size of Rs. 100 crore and above and  all  deposit  taking  NBFCs  holding  public  deposits  of  Rs.  20  crore  or  more,  were required  to  put  in  place  an  asset  liability  management  (ALM)  system  which, inter-alia , covered the monitoring of structural and short term dynamic liquidity. Further, in order to strengthen  and  raise  the  standard  of  the  ALM  framework  applicable  to  NBFCs,  RBI guidelines  on  the  subject  have  been  revised vide its  circular  dated  4.11.2019.  The  revised framework has been made applicable to all non-deposit taking NBFCs with asset size of Rs.  100  crore  and  above,  systemically  important  CICs  and  all  deposit  taking  NBFCs irrespective  of  their  asset  size.  As  per  this  revised  guidelines,  NBFC  must  have  a contingency funding plan for responding in case of severe disruptions in a timely manner and  at  a  reasonable  cost.  This  also  includes  details  of  available/potential  contingency funding  sources  and  the  amount/estimated  amount  which  can  be  drawn  from  these sources. Also, NBFC must conduct stress tests on a regular basis for a variety of short-term and NBFC-specific and market-wide stress scenarios. (b): RBI has apprised that as per its new guidelines dated 4.11.2019, all non-deposit taking systemically important NBFCs with asset size of Rs. 5,000 crore and above (except CICs, Type 1 NBFC-Non Deposit, Non-Operating Financial Holding Companies and Standalone Primary Dealers) and all deposit taking NBFCs irrespective of the asset size are required to maintain a minimum Liquidity Coverage Ratio (LCR) of 50% in a phased manner beginning 1.12.2020  and  achieve  100%  in  1.12.2024.  For  the  purpose  of  LCR,  these  NBFCs  are required to keep 'High Quality Liquid Assets (HQLA)' i.e. liquid assets that can be readily sold or immediately converted into cash at little or no loss of value or used as collateral to obtain  funds  in  a  range  of  stress  scenarios.  The  fundamental  characteristics  of  HQLAs include  low  credit  and  market  risk,  ease  and  certainty  of  valuation,  low  correlation  with risky assets and listing on a developed and recognized exchange market. The market related characteristics of HQLAs include active and sizeable market, presence of committed market makers, low market concentration and flight to quality. (c): NBFCs are regulated and supervised by the RBI as per powers vested in it under the provisions  contained  in  Chapter  IIIB  of  the  Reserve  Bank  of  India  Act,  1934.  RBI  has informed that it is closely monitoring the liquidity position of the NBFCs and will continue to monitor the activity and performance of the NBFC sector with a focus on major entities and their inter-linkages with other sectors. RBI has further informed that with a view to strengthen the NBFCs and maintain stability of the financial system, it is taking necessary

regulatory and supervisory steps.

*****