Nifty99000 100%

Sensex99000 100%

Article rating: 5.0
Tags:
Article rating: No rating
Tags:
Article rating: 5.0
Tags:
Article rating: No rating
Tags:
Article rating: 5.0
Tags:
Article rating: 5.0
Tags:
Article rating: No rating
Tags:
Article rating: 5.0
Tags:
Article rating: 5.0
Tags:
Article rating: 2.0
Tags:
Article rating: 5.0
Tags:
Article rating: 5.0
Tags:
Article rating: 4.0
Tags:
Article rating: 4.5
Tags:
Article rating: 5.0
Tags:
Article rating: 5.0
Tags:
RSS

News

RBI norms to put pressure on NBFCs margins

Author: PTI/Wednesday, May 29, 2019/Categories: Regulatory

RBI norms to put pressure on NBFCs margins

Mumbai - The draft liquidity norms for the non-banking financial companies (NBFCs) announced by the Reserve Bank will put pressure on their margins and returns over the medium term, analysts say.

The proposed norms may also result into consolidation in the NBFC sector, they said.

Last week, the RBI released a draft circular on Liquidity Risk Management Framework for NBFCs with an asset size of Rs 100 crore.

The norms will also be applicable for all Core Investment Companies (CICs) registered with the Reserve Bank.

The draft norms said all non-deposit taking NBFCs with asset size of Rs 5,000 crore and above, and all deposit taking NBFCs irrespective of their asset size, shall maintain a liquidity buffer in terms of a liquidity coverage ratio (LCR) which will promote resilience of NBFCs to potential liquidity disruptions by ensuring that they have sufficient High Quality Liquid Asset (HQLA) to survive any acute liquidity stress scenario lasting for 30 days.

"NBFCs would have to carry low yielding assets to meet the HQLA requirement going forward, which could exert pressure on their net margins, rating agency Icra said in a report.

In a note, financial services company Jefferies India said LCR norms would affect margins and returns in the medium term, especially for housing finance companies (HFCs), given higher asset liability management (ALM) mismatch.

Tighter liquidity norms should induce stronger ALM discipline among NBFCs, it said.

The LCR norms will be implemented in a calibrated manner over a period of four years starting from April 2020 and going upto April 2024.

The LCR requirement shall be binding on NBFCs from April 1, 2020 with the minimum HQLAs to be held being 60 per cent of the LCR, progressively increasing to the required level of 100 per cent by April 01, 2024.

Icra further said most large and better managed NBFCs have upped their on-book liquidity post September 2018 and carry adequate sanctioned credit/funding lines, with which they could meet the 100 per cent LCR requirement, even after stressing the outflows by 115 per cent and inflows by 75 per cent.

"Well managed NBFCs typically maintain 1-2 months debt repayments and in some case even expected disbursements, in the form of sanctioned undrawn lines, which would support their LCR ratio," the rating agency said.

According to law firm Cyril Amarchand Mangaldas Partner, Leena Chacko, the new norms would lead to consolidation in the NBFC sector.

"There is likely to be consolidation because NBFCs with higher liabilities and lesser liquid assets will have to consolidate in order to meet the regulatory requirement," Chacko said.

It should help improve the creditworthiness of the NBFCs and ensure that they are able to meet their liabilities, she said.

Aadhar Housing Finance Managing Director and Chief Executive, Deo Shankar Tripathi, said implementation of LCR and maintaining HQLA are very important and timely steps for sound and healthy growth of NBFCs.

"However, maintaining HQLA will be some drag on the margin and growth which is already under pressure due to increase in cost of borrowing and tightness in liquidity post September 18," Tripathi said.

He said lower rated NBFCs will find it difficult to raise resources under the proposed tight liquidity and ALM management norms, which are very good for stability of the sector.

"This might lead to consolidation in highly crowded NBFC space," he said.

Print Rate this article:
No rating

Number of views (490)/Comments (0)

rajyashree guha

PTI

Other posts by PTI
Contact author

Leave a comment

Name:
Email:
Comment:
Add comment

Name:
Email:
Subject:
Message:
x

Videos

Ask the Finapolis.

I'm not a robot
 
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
 
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest
 
 

Categories

Disclaimer

The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free