Banks’ exposure limits, lending norms eased for stressed NBFCs

  1. The Reserve Bank of India (RBI) has announced several measures to enhance credit flow to the cash-starved non-banking financial companies (NBFC) sector.
  2. The RBI has raised any bank’s exposure limit to a single NBFC from the existing 15% to 20% of tier-1 capital.This will ease liquidity pressure in the NBFCs.
  3. RBI has also allowed bank lending to registered non-banking financial companies(NBFC) for on-lending to (a)agriculture up to Rs 10 lakh (b)micro and small enterprises up to Rs 20 lakh and (c)housing up to Rs 20 lakh per borrower to be classified as priority sector lending.
  4. This decision was taken to increase the credit flow to sectors which contribute significantly to economic growth in terms of exports and employment and recognising the role played by NBFCs in providing credit to these sectors.
  5. NBFC has seen their source of funds dry up after a series of defaults by Infrastructure Leasing & Financial Services(ILFS) that has triggered a liquidity crisis.
  6. The Reserve Bank has already indicated that it would review the regulatory framework for the financial sector.The government has also announced temporary support to NBFCs and housing finance firms through public sector banks (PSBs).