On Friday, The Reserve Bank of India (RBI) said from April 1 next year large non-banking financial companies (NBFCs) should maintain a liquidity coverage ratio (LCR) in line with banks and carry enough collateral that can be used for liquidity needs.
“An NBFC should have sufficient collateral to meet expected and unexpected borrowing needs and potential increases in margin requirements over different timeframes,” the RBI said in a draft circular, in which it asked the firms to have enough high-quality assets that would keep them liquid for at least 30 days.
An NBFC must actively manage its collateral positions, differentiating between encumbered and unencumbered assets, and monitor such assets so that they can be mobilized in a timely manner. NBFCs must have contingency funding plans for responding to severe disruptions and liquidity positions should be disclosed to the public for investors.
The draft guidelines said, “the LCR requirement shall be binding on NBFCs from April 01, 2020 with the minimum HQLAs to be held being 60% of the LCR, progressively increasing in equal steps reaching up to the required level of 100% by April 01, 2024.”
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