Quickly acting on a Budget proposal to offer credit guarantee to higher-rated asset pools of financially sound non-banking finance companies, the Reserve Bank Friday allowed banks to offer additional liquidity against their excess G-secs holdings, with immediate effect.
The move will release an additional liquidity worth Rs 1.34 trillion to banks, which can be used for on-lending to shawdow banking companies, which have been fund starved since last September after industry major IL&FS went bankrupt.
Banks generally hold much more than the mandated 19 percent SLR (statutory liquidity ratio) by holding more government securities which on average is around 23 percent for the system.
Presenting the Budget, finance minister Nirmala Sitharaman earlier in the day said for purchasing high-rated pooled assets of financially sound NBFCs, amounting to Rs 1 lakh crore in FY20, it will provide one-time six months’ partial credit guarantee to public sector banks for first loss of up to 10 percent.
“To enable banks to implement this announcement and deal with the NBFCs/HFCs issue effectively, the RBI will provide required liquidity backstop to the banks against their excess G-secs holdings,” RBI said in a release Friday evening.
The central bank also decided to frontload the facility for liquidity coverage ratio which see it increasing by 0.5 percent each in August and December 2019.
“We have permitted banks to reckon with immediate effect the increase in liquidity coverage ratio of 1 percent of the their NDTL, to the extent of incremental outstanding credit to NBFCs and HFCs over and above the amount of credit to NBFCs/HFCs outstanding on their books as on date,” the release said.