RBI To Include NBFCs Under Long-Term Operations
The Reserve Bank of India (RBI) logo is displayed outside the central bank in Mumbai, India. (Photographer: Kanishka Sonthali/Bloomberg)

RBI To Include NBFCs Under Long-Term Operations

The Reserve Bank of India will allow banks to extend credit to non-banking finance companies under the targeted long-term repo operations scheme.

RBI Governor Shaktikanta Das announced this and other liquidity and regulatory measures on Friday along with the monetary policy committee's decision to hold key policy rates and maintain an accommodative stance.

The TLRO scheme, announced in March last year, was aimed at providing funds to specific sectors and was expanded to five more sectors in October. In December, 26 stressed sectors identified by the KV Kamath committee were included.

The previous iterations of the TLTRO scheme used banks as intermediaries to supply liquidity to various sectors, including stressed NBFCs and microfinance institutions. Now, the inclusion of NBFCs as intermediaries to provide funds to specific sectors will aid in wider distribution.

“Given that NBFCs are well-recognised conduits for reaching out last-mile credit and act as a force multiplier in expanding credit to various sectors, it is now proposed to provide funds from banks under the TLTRO on-tap scheme to NBFCs for incremental lending to these sectors,” the RBI said in its statement for developmental and regulatory policies.

The on-tap TLTRO scheme includes Rs 1-lakh-crore worth funds with a tenor of three years at a floating rate linked to the policy repo rate.

The inclusion of NBFCs under on-tap TLTROs is likely to improve the credit flow to the NBFC sector in near term, according to Karthik Srinivasan, group head-financial sector ratings at ICRA Ltd. “An extension of time period beyond March 31, 2021, however, could have been considered.”

Liquidity Measures

  • Statutory liquidity ratio holdings under the held-to-maturity category of up to 22% of net demand and time liabilities extended till March 31, 2023.
  • SLR under HTM category to be restored to previous level of 19.5% in a phased manner starting April-June 2023.
  • To defer last tranche of capital conservation buffer of 0.625% by another six months to October 2021.

Pushing Retail Participation In Financial Markets

  • To permit resident individuals to make remittances to international finance centres for purposes of investing in securities issued by non-resident companies.
  • Retail investors to be allowed to invest in government bonds directly by opening accounts with the RBI.

Regulatory Measures

  • To incentivise flow of credit to new micro, small and medium enterprises, the RBI will allow banks to deduct credit disbursed to these borrowers from calculation of CRR.
  • New MSME borrowers to include those who have not availed any bank credit as of Jan. 1, 2021. Loans up to Rs 25 lakh per new MSME borrower, up to the fortnight ending Oct. 1, 2021, to be included.
  • The RBI intends to review the regulatory framework for microfinance institutions. “There is a case for having a framework which is uniformly applicable to all regulated lenders in the microfinance space including scheduled commercial banks, small finance banks and NBFC-Investment and Credit Companies, rather than prescribing these guidelines for NBFC-MFIs alone,” the RBI said.
  • Expert committee to review guidelines governing urban cooperative banks.

Payments-Related Measures

  • To integrate three separate ombudsman schemes for banks, NBFCs and non-bank payment operators into one for better grievance redressal.
  • To issue guidelines covering outsourcing of payment system-related services.
  • 18,000 bank branches which currently not covered by any formal clearing house to be brought under the cheque-truncation system by September 2021.
  • 24x7 centralised helpline for payments-related grievances by customers. Helpline to be funded by payment system operators.
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