NBFCs must adopt better tools to detect liquidity strains: RBI
   Date :05-Nov-2019
Business Bureau :
Reserve Bank on Monday asked the already fund-starved NBFCs to adopt better risk monitoring tools that capture the strains early on and also to maintain a liquidity buffer as per the mandated liquidity coverage ratio. The regulator also wants the shadow banks to monitor their liquidity risks based on a stock approach to liquidity.
The new norms will be applicable to all non-deposit taking NBFCs with an asset size of Rs 10,000 crore and above, and all deposit-taking NBFCs irrespective of their asset size and mandate them to maintain a liquidity buffer in terms their liquidity coverage ratio. The new LCR requirement will be binding from December 2020 with the minimum high quality liquid asset of 50 per cent of LCR, and progressively reaching up to the required level of 100 per cent by December 2024.
“The monitoring tools shall cover concentration of funds by counterparty/instruments/currency and availability of unencumbered assets that can be used as collateral for fund raising," RBI said in a notification titled ‘guidelines on liquidity risk management framework’. The proposed tools should also have certain early warning market-based indicators, such as book-to-equity ratio, coupon on debt raised, breaches and regulatory penalties for breaches in regulatory liquidity requirements. The regulator further said monitoring shall be by way of predefined internal limits as decided by the board.