On 4 Nov’19, RBI released new guidelines on liquidity risk management for non-bank lenders.

They aim to structurally reduce non-bank lenders’ dependence on short-term borrowings, decrease asset liability mismatch and have higher share of liquid assets on balance sheet.

Structural negative impact on net interest margins (NIMs) should be limited to 5-20bps for retail NBFCs but higher for HFCs and wholesale NBFCs.

This is because the liquidity crunch in the past 12 months pushed NBFCs/HFCs to prudent practices of borrowing longer term.

Nevertheless, this curtails ability of non-bank lenders to benefit from higher liquidity at shorter tenures; so NIMs for non-bank lenders are unlikely to return to levels of FY16-18 even after softening of liquidity.

Aligning regulations closer to banks in the long run should benefit given some NBFCs have grown larger than some mid-size banks.

Disclaimer: The above report is compiled from information available on public platforms. inChat team advises users to check with certified experts before taking any investment decisions.

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