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RBI moves to ease liquidity for non-banking finance firms

Relaxes holding period for securitisation of loans to six months from one year

In a move to make more liquidity available to non-banking finance firms, the Reserve Bank of India has relaxed the securitisation norms by relaxing the minimum holding period requirement. The move follows a demand from the government for a special window for NBFCs, to provide them liquidity support.

RBI has decided to relax the Minimum Holding Period (MHP) requirement for originating NBFCs, as they are now allowed to securitise loans with maturity of more than five years after holding them for six months on their books, as compared to one year earlier.

The relaxation on the minimum holding period will be allowed when the NBFC retains 20% of the book value of these loans, the RBI said. “The above dispensation shall be applicable to securitisation / assignment transactions carried out during a period of six months from the date of issuance of this circular,” RBI said in a notification on Thursday.

The NBFC sector is facing liquidity shortage after Infrastructure Leasing & Finance Services, a core investment company, started defaulting on loans which resulted in the government dismantling the existing board of IL&FS and installing a new one. The cost of funds has gone up for the non-banking finance firms putting pressure on profitability.

I think this is the best step taken so far; this will add meaningfully to retail type of lenders such as [ourselves],” said Gagan Banga, VC and MD, IndiaBulls Housing Finance.

‘Growth capital’

“What this means [for us] is between now and May [2019], we can raise additional ₹25,000 crore. In the last two months, we have raised around ₹24,000 crore.

“From a liquidity standpoint, we are doing extremely well. That said, we needed growth capital. So this is not a liquidity solution but growth capital.”

“Relaxation in MHP criteria would primarily benefit Housing Finance Companies and NBFCs offering mortgage loans where the loan tenure is typically more than 5 years. A greater proportion of their loan book would now become eligible for securitisation,” said Vibhor Mittal, group head, Structured Finance, ICRA.

In a separate move aimed at boosting MSME sector exports, the RBI said the interest subsidy on post and pre-shipment export credit has been increased to 5% from 3%. The increased subsidy is applicable effective November 2. Exporters get the subsidy under the ‘Interest Equalisation Scheme on Pre and Post Shipment Rupee Export Credit’

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