Banks are also allowed to classify loans to NBFCs for key areas such as agriculture, housing and small and medium businesses to be treated as priority sector lending
The Reserve Bank of India (RBI) has opened the liquidity tap for the non-banking finance companies (NBFCs) by allowing banks to increase their exposure limits to this financially distressed sector. Banks are also allowed to classify loans to NBFCs for key areas such as agriculture, housing and small and medium businesses to be treated as priority sector lending.
However, credit flow to the debt-laden housing finance companies may still remain muted as banks will be risk-averse, an expert tracking the sector said. Housing finance companies have lent long-term using short term resources, creating asset-liability mismatches which may be hard to bridge.
RBI, in the third policy of the current financial year, raised the exposure limit to a single NBFC to 20% of the Tier-I capital of a bank against the current 15%.
The Tier I capital of the banking system is about Rs 10 lakh crore, according to rating agency Icra's estimates. A 5% increase will mean than banks can undertake an additional exposure of Rs 50,000 crore to a single NBFC, taking the overall exposure to Rs 2 lakh crore. But no bank has such a large exposure to a single NBFC. If a bank is nearing exposure limits, this will give them additional room to lend.
Rating agency Icra said, "As per our estimates, none of the NBFCs will potentially have such a huge exposure to the banking system. However, it may enable some of the individual banks, which may be breaching single NBFC exposure limit, to extend fresh funding."
"It will be our endeavour to see that there is no collapse of any large NBFC," RBI governor Shaktikanta Das said in a media conference after unveiling the monetary policy.
RBI is also prodding banks to lend to shadow banks which lend to agriculture, low-cost housing and small and medium industries, saying this on-lending will be considered as priority sector lending of banks.
"Banks are allowed on-lending to agriculture up to Rs 10 lakh and micro and small enterprises up to Rs 20 lakh and micro and small enterprises up to Rs 20 lakh and housing up to Rs 20 lakh per borrower to be classified as priority sector lending," RBI said
Umesh Revankar, managing director and chief executive officer, Shriram Transport Finance, said permitting banks to on-lend through NBFCs for priority sector would make this transmission faster and more efficient.
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