Last week RBI proposed draft guidelines on liquidity coverage ratio (LCR) for Non-Banking Financial Companies (NBFCs). This can curtail their ability to lend in short term. According to the draft, the Liquidity Risk Management Framework will be placed on NBFCs and Core Investment Companies (CICs).

Liquidity Coverage Ratio will be implemented in a phased manner over 4-year period.

  • From April 1, 2020: LCR (liquidity coverage ratio) at 60 percent.
  • From April 1, 2021: LCR at 70 percent.
  • From April 1, 2022: LCR at 80 percent.
  • From April 1, 2023: LCR at 90 percent.
  • From April 1, 2024: LCR at 100 percent.

LCR is calculated by dividing a company’s high-quality liquid assets by its net cash flow over 30-day period. Right now banks are required to maintain 100 percent LCR. This draft hopes to make NBFCs liquidity accountability at par with banks.

Furthermore, to ensure asset liability discrepancies don’t blow out of proportion, NBFCs will need to divulge their ALM (Asset Liability Management). “The net cumulative negative mismatches in the maturity buckets 1-7 days, 8-14 days, and 15-30 days buckets should not exceed 10 percent, 10 percent and 20 percent of the cumulative cash outflows in the respective time buckets” – RBI Draft. NBFCs also need to disclose from now on their top 20 large deposits, top 10 borrowings, exposure to CPs, NCDs & other short-term liabilities.

If enforced, the new RBI NBFC rules will bring better reporting structure for monitoring liquidity risks in NBFC space. RBI has sought feedback till 14th June before framing the final draft.


By Abhay Gupta

With background in e-commerce and IT, Abhay manages operations and backend processes at SAKSHAM Wealth. He is a data cruncher and his expertise with MS Excel helps the team in research.

Leave a Reply

Your email address will not be published.