RBI-NBFC Meeting: Funding Demands Amid Shrinking Bank Credit
Why in the news
Heads of select NBFCs met the RBI Governor and senior officials to seek easier funding, since bank lending to the sector has declined.
Demands made
| Area | Proposal | Reason |
|---|---|---|
| ECB | Annual automatic-route limit of $750 million | Raise foreign funds when domestic sources are tight |
| Liquidity | National liquidity facility for smaller NBFCs, like an NHB-type entity | Smaller NBFCs pay more and struggle for funds versus AAA-rated ones |
| Gold loan NBFCs | Reclassify for benefits like housing finance and microfinance firms | May lower risk weights and improve funding |
| Debt market | Deepen domestic bond market | Lower-rated NBFCs rely on overseas bonds; cut dependence on banks and foreign markets |
| MFIs | Dedicated refinancing institution | Help distressed microfinance institutions get credit |
About ECBs
- A foreign currency loan taken by an Indian company from a non-resident lender; can be a bank loan, bond or supplier or buyer credit.
- Must follow RBI and Department of Economic Affairs norms.
- Automatic route: no prior approval if standards are met; approval route: government approval needed for certain industries.
Background
- November 2023: risk weights on bank loans to NBFCs rose from 100% to 125%, making borrowing costlier.
- The fall in bank exposure was seen as good for stability but cut NBFC liquidity.
- Governor Malhotra urged NBFCs to join the Unified Lending Interface (ULI), a digital lending framework meant to improve access and transparency; it was built by RBIH with RBI.
Exam angle
- ECB limit demanded: $750 million.
- Risk weight: 100% to 125% (November 2023).
- ULI: plug-and-play platform using standard APIs.