The government of India and the RBI have stepped-in to ease investor sentiments as news about the in-adequate business model of NBFCs gains momentum. The NBFCs hold a 53 percent stake in financing real estate in India and a crisis in this sector has lead to mutual funds curtailing exposure – leading to a reduction in borrowing capacity of NBFCs.
In an attempt to address these issues, the government of India has announced that the national housing bank has increased its re-finance limit from ₹ 24,000 crores to ₹ 30,000 crores. The government may increase the limit further, pertaining to how the situation unfolds in the coming weeks.
Further, the RBI and the Securities and Exchange Board of India (SEBI) has issued a joint statement to calm down the markets. In the statement, the RBI has announced a few measures that it believes would suffice.
- It eased the mandatory liquidity coverage ratio requirements for banks so that they could increase their lending to NBFCs
- It also allowed banks to increase upto 15 percent of their capital funds to NBFCs which are funding non-infrastructure projects.
The coming few weeks are critical to know if the above measures will suffice. Upto ₹ 1.5 lakh crores will be up for redemption within the next two months by NBFCs.
The government of India however, is pushing for two additional measures. It is calling on the RBI to ease Preventive Correction Action (PCA) norms for the banks falling within – so that lending to NFBCs can be increased. Additionally, like in the past, the government is pushing for a special liquidity-window from the RBI.