Reserve Bank of India, has extended the availability of relaxed terms of asset sales by non-bank lenders to banks by June 30 2020. The relaxation was earlier provided upto 31st Dec 2019.
- The rules on Securitization transactions were relaxed originally on Nov 29, 2018, which was after the liquidity crisis crept up on account of collapse of Infrastructure Leasing and Financial Services (IL &FS) Group.
- With a view encourage the NBFCs either to securitize or assign their eligible assets RBI had reduced the minimum holding period (MHP) requirement for originating NBFCs, in respect of loans of original maturity above 5 years to six months from one year earlier.
- Also to enable the loan pools to avail this privilege, the minimum retention requirement (MRR) for such securitizations must be 20% of the book value of the loans being securitized or 20% of the cash flows from the assets assigned.
- The relaxed guidelines for direct transactions and securitization were framed to facilitate flow of funds from banking sector to NBFCs.
- Subsequently more measures were framed by RBI to help out the NBFCs to access funds
- In September 2019 RBI revised the large exposure frame work (LEF) which is in effect from 1st April 2019 for all scheduled commercial banks.
- Under the earlier framework, a bank’s exposure to a single NBFC was restricted to 15% of its available eligible capital base, and the general single counter party exposure was 20%.
- During the monetary committee’s policy review in December last year the RBI had said that NBFC sector is gradually reviving.
- Also he had remarked that markets are today differentiating between good performing and bad performing NBFCs and better performing NBFCs are able to access funds from the market at pre IL&FS rates.