Lok Sabha Question No. 1895 (UNSTARRED), answered on 2018-12-21
Subject: Non-Banking Financial Companies
Ministry: FINANCE
Asked by: KONAKALLA NARAYANA RAO, RAVNEET SINGH

## GOVERNMENT  OF INDIA MINISTRY  OF FINANCE DEPARTMENT  OF FINANCIAL SERVICES

## LOK SABHA UNSTARRED QUESTION NO. 1895 TO BE ANSWERED ON THE 21 ST  DECEMBER 2018/ AGRAHAYANA 30, 1940  (SAKA) Non-Banking Financial Companies

## 1895.   SHRI KONAKALLA  NARAYANA  RAO: SHRI  RAVNEET SINGH:

Will  the Minister  of FINANCE  be pleased to state:

- (a) whether  the Government  has taken  note of the Non-Banking  Financial  Companies (NBFCs)  which  are suffering  from  liquidity issues/significant  liquidity crunch  recently;
- (b) if so, the details  thereof;
- (c) the manner  in which  the Government  has reassured  the investors  in the wake  of this crisis;
- (d) whether  the Government  has provided  any  additional  liquidity to the NBFCs,  if so, the details  thereof;  and
- (e) the  other   steps  taken   by   the  Government   to  provide   additional   liquidity to  the NBFCs?

## ANSWER Minister of State in the Ministry  of Finance

## (SHRI SHIV PRATAP  SHUKLA)

- (a) and (b): As per inputs  received  from  the Department  concerned,  market  participants have reported  on tight  liquidity conditions  pursuant  to the default  on its debt obligations by  Infrastructure   Leasing   &  Financial   Services   Limited   (IL&FS),   a  large   Systemically Important  Non-Deposit  Accepting  Core  Investment  Company  (CIC-ND-SI).  The overall liquidity conditions  in the banking  system  have otherwise  also been pressuri sed since the second half of August  2018 due to factors like  increase  in credit  off-take,  festive demand, fund requirements,  etc.
- (c): Government  superseded  the existing  Board of IL&FS,  and appointed  a new  Board of Directors  on 1 st October  2018, which  has been tasked  with  the responsibility of preparing a  robust and  time-bound   resolution   plan.   The  Financial   Stability   and  Development Council  (FSDC)  in its 19 th meeting  held on 30 th October  2018, discussed at length, inter alia, the  current   liquidity situation,   including   segmental   liquidity position   in  the  NBFCs and mutual  fund space.

(d) and (e): Reserve  Bank of India (RBI) has apprised  that  the following  measures  have been taken  to improve  the liquidity in the market  and to improve  the liquidity  of NBFCs:

(1) Open  market   operations were  conducted in addition to regular Liquidity Adjustment  Facility  (LAF)  auctions  to inject  liquidity in the financial  markets.

(2)  RBI  permitted   banks   to  reckon   Government   securities   held  by   them   up to  an amount  equal  to their  incremental  outstanding  credit  to NBFCs  and Housing  Finance Companies   (HFCs),   over  and  above  the  amount   of  credit   to  NBFCs   and  HFCs outstanding  on their  books  as on 19 th October  2018, as Level 1 High  Quality  Liquid Asset  (HQLA)   under the  Facility   to  Avail   Liquidity for  Liquidity Coverage   Ratio (FALLCR)  within  the mandatory  Statutory  Liquidity Ratio  (SLR) requirement. This  is in  addition   to  the  existing   FALLCR   of  13  percent   of  Net   Demand and  Time Liabilities   (NDTL),   and  limited   to  0.5  percent   of  the  bank's   NDTL.   The   above additional  FALLCR  will  be available  up to  31 st  December  2018.

(3) The single  borrower  exposure  limit  for NBFCs  that  do not finance  infrastructure stands increased  from 10 percent  to 15 percent  of capital  funds, up to 31 st  December 2018.

(4) Banks  were permitted on 2 nd November   2018  to provide Partial Credit Enhancement  (PCE) within  the aggregate PCE exposure limit  of 20% for bonds of minimum  tenor  of three  years  issued by  NBFC-ND-SIs  registered  with  the RBI and HFCs registered  with  the National  Housing  Bank,  within  one percent  of capital  funds and with  regard  to extant  single/group  borrower  exposure limits  for refinancing  the existing  debt.

(5) RBI reduced  the minimum  average  maturity requirement  for External  Commercial Borrowings  (ECBs) in the infrastructure space raised by  eligible  borrowers  from  five years  to three  years  with  effect from  6 th  November  2018.

(6) To encourage  NBFCs  to securitise/assign  their  eligible  assets, in respect  of loans of  original   maturity above  five  years,   RBI  has  relaxed   till   May   2019  the  Minimum Holding   Period   requirement   for  originating NBFCs   to  receipt of  repayment   of  six monthly   instalments   or  two   quarterly instalments,   subject   to  Minimum   Retention Requirement  for such securitisation/assignment transactions  being 20% of the book value  of the loans  being  securitised  or 20% of the cash flows  from  the assets assigned .