INSUBCONTINENT EXCLUSIVE:
recent experience of debt default of a systemically important NBFC highlighted the vulnerability and need for strengthening regulatory
report released on Friday.
ALM guidelines are applicable to non-deposit-taking NBFCs with asset size of Rs 100 crore and above and to those
deposit-taking companies which have a deposit base of Rs 20 crore and more
At present, ALM guidelines, as prescribed for the sector, are related to ALM information systems, ALM organisation including setting up of
asset liability committee and its composition, and the ALM process
These also detail out the requirement for monitoring of structural liquidity, short-term dynamic liquidity and interest rate sensitivity
The banking regulator said these instructions are less granular compared with that of banks
Also, the ALM instructions for registered core investment companies are minimal
The RBI intends to strengthen the ALM framework for NBFCs on lines similar to that for banks and harmonise it across the different
categories of NBFCs.
According to the central bank, a study suggests that NBFCs operate a passive strategy for managing asset-liability
mismatches by covering gaps in the wholesale funding markets, rendering them vulnerable to liquidity risks.
In its report, the RBI said that
its continuing vigil on the regulatory and supervisory front on NBFCs will ensure that the growth of the sector is sustained and liquidity
fears are allayed.
Recent concerns about asset-liability mismatches have been proactively addressed through liquidity provisions by the
Reserve Bank, the regulator said
In October, the RBI had allowed NBFCs to co-originate priority sector loans with banks to generate synergy arising from the combination of
sector due to debt defaults amid temporary asset liability mismatches arose, the inherent strength of the sector, coupled with the Reserve
by credit expansion of NBFC NDSI 13.4%, while the balance sheet of deposit-taking NBFCs registered robust growth at 24.4% in 2017-18 on
account of a sharp rise in loans and advances
The RBI also noted that the financial performance of NBFCs, including profitability, asset quality and capital adequacy, improved during
2017-18 as they weathered the transient effects of demonetisation and implementation of GST.
