RBI relaxes rules for NBFCs to sell or securitise their loan books to ease persistent stress in sector

Reserve Bank of India (RBI) relaxed rules for non-banking financial companies (NBFCs) to sell or securitise their loan books in bid to ease persistent stress in the sector. RBI has relaxed minimum holding period (MHP) requirement for originating NBFCs, in respect of loans of original maturity above 5 years, to receipt of repayment of six monthly installments or two quarterly instalments. Earlier, they had to hold these assets for at least one year. However, relaxation on MHP will be allowed when NBFC retains 20% of book value of these loans. RBI also has prescribed certain Minimum Retention Requirement (MRR) for NBFCs for availing the relaxed norms. The relaxed dispensation will apply to securitisation/ assignment transactions carried out during six months.

Background

NBFCs loosely known as shadow banks, are facing stress on their balance sheets after debt crisis hit large infrastructure funding company in September, triggering panic amongst investors and cash crunch in the sector. Following massive volatility in financial markets, RBI and government have taken steps to ringfence crisis and support financing needs of sector, including providing additional liquidity to banks and credit enhancement for refinancing needs.

Month: Current Affairs - November, 2018