Banks' Endeavour to Buyout NBFCs' Loan Book is Synergetic

India Ratings and Research (Ind-Ra) believes that the steps taken by Reserve Bank of India (RBI) to support systemic liquidity and State Bank of India (SBI; IND AAA/Stable) to offer balance sheet liquidity for non-banking financial companies (NBFCs) would help alleviate some of the ongoing tightness in the financial system. These measures however are likely to bring about a temporary effect. For long-term sustainability, restoration of normalcy in the credit market especially for NBFCs is critical. Additionally, development of alternative sources of financing such as an active securitisation market would be beneficial.

Actions to Complement System and Balance-sheet Liquidity: The RBI has recently infused INR320 billion of durable liquidity into the system and another INR240 billion is likely to come in the month of October 2018 through open market operations. In addition, to tide over frictional liquidity mismatches, banks are now permitted to reckon SLR securities held by them up to another 2% of their net demand and time liabilities, under the facility to avail liquidity for liquidity coverage ratio within the mandatory SLR requirement. Ind-Ra believes this will help in stabilising the systemic liquidity, especially in light of possible draining of liquidity in the upcoming festive session. SBI has announced an additional INR300 billion asset buyout from NBFCs, which would help them tide over the ongoing challenges....Read More