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RBI may ease NBFC funding norms
October 24, 2008 02:16 IST
The Reserve Bank of India [Get Quote] (RBI) is considering options to make cheaper finance available to the non-banking finance companies (NBFCs), including a separate line of credit for bank finance backed by government securities or AAA-rated commercial paper (CP).
Sources close to the development said the central bank is also reviewing the various restrictions on placing bank funds with NBFCs and may relax prudential ceilings.
NBFC representatives met central bank officials over the last few days to seek easier bank finance since commercial paper worth Rs 20,000 crore to Rs 25,000 crore is coming up for maturity.
"The funds are particularly needed for retail finance because this sector has lately been under strain," said the head of an NBFC, who was present at the meeting.
CPs are short-term instruments through which companies raise funds from banks. It is usually rolled over on every maturity date to sustain the flow of short-term credit to companies.
Sources said the fund requirement is acute for three or four large NBFCs that have grown rapidly in recent times and accumulated large exposures in the stock market, real estate, commodities and retail financing.
The only reason such entities need assistance is that they pose a systemic risk.
At present, a bank's exposure to a single NBFC is currently capped at 10 per cent of banks' capital funds and 15 per cent for an NBFC engaged in asset financing companies. Further, banks are not allowed to grant bridge loans against capital and debenture issues, to avoid asset-liability mismatches.
Shares and debentures are not accepted as collateral for secured loans granted to NBFCs. Banks also do not execute guarantees covering inter-company deposits or loans since it is then interpreted as the banks insuring deposits or loans accepted by NBFCs.
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