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This article is more than 2 year old.

RBI offers banks additional Rs 1.34 lakh crore liquidity against G-secsholding for lending to NBFCs

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The move will release an additional liquidity worth Rs 1.34 trillion to banks, which can be used for on-lending to shadow banking companies, which have been fund-starved since last September after industry major IL&FS went bankrupt.

RBI offers banks additional Rs 1.34 lakh crore liquidity against G-secsholding for lending to NBFCs
Quickly acting on a Budget proposal to offer credit guarantee to higher-rated asset pools of financially sound non-banking finance companies, the Reserve
Bank Friday allowed banks to offer additional liquidity against their excess G-secs holdings, with immediate effect.
The move will release additional liquidity worth Rs 1.34 lakh crore to banks, which can be used for on-lending to shawdow banking companies, which have been fund-starved since last September after industry major IL&FS went bankrupt.
Banks generally hold much more than the mandated 19 percent SLR (statutory liquidity ratio) by holding more government securities which on average is around 23 percent for the system.
Presenting the Budget, finance minister Nirmala Sitharaman earlier in the day said for purchasing high-rated pooled assets of financially sound NBFCs, amounting to Rs 1 lakh crore in FY20, it will provide one-time six months' partial credit guarantee to public sector banks for first loss of up to 10 percent.
"To enable banks to implement this announcement and deal with the NBFCs/HFCs issue effectively, the RBI will provide required liquidity backstop to the banks against their excess G-secs holdings," RBI said in a release Friday evening.
The central bank also decided to frontload the facility for liquidity coverage ratio which see it increasing by 0.5 percent each in August and December 2019.
"We have permitted banks to reckon with immediate effect the increase in liquidity coverage ratio of 1 percent of the their NDTL, to the extent of incremental outstanding credit to NBFCs and HFCs over and above the amount of credit to NBFCs/HFCs outstanding on their books as on date," the
release said.
It will enable the banks to avail of additional liquidity worth Rs 1.34 lakh crore, the RBI said, adding it has been closely monitoring top NBFCs/HFCs, identified on the basis of their size and credit behaviour.
Over the past six months or so, the RBI has also infused adequate liquidity in to the system through OMOs, currency swaps, phased increase in the additional liquidity coverage ratio.
"For more than a month now, there is surplus liquidity in the system," RBI said.
An internal working group at the central bank is reviewing the liquidity management framework and their recommendations are expected by the middle of the month.