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MOSL: FINANCIALS – NBFC-A confidence booster from RBI; Another window of liquidity for NBFCs

Financials - NBFC: A confidence booster from RBI; Another window of liquidity for NBFCs

 

• The RBI, in its , has indirectly opened another liquidity window for NBFCs/HFCs, which should, to some extent, allay fears of high commercial paper (CP) rollovers coming up in the near term.
• In this circular, the RBI has allowed banks (a) to increase their exposure to NBFCs from 10% of networth to 15% and (b) carve out of additional 0.5% of NDTL from statutory liquidity ratio (SLR) securities for calculation of liquidity coverage ratio (LCR) for incremental lending to NBFCs/HFCs.
• Based on NDTL of INR121t at the system level, this effectively opens a window of ~INR600b for NBFCs/HFCs without impacting LCR of banks. Over the last one month, there have been multiple positive announcements that would directly/indirectly provide liquidity support to NBFCs, including (a) banks increasing the portfolio buyout limit, (b) RBI’s open market operations (OMO) of INR360b in Oct’18, (c) National Housing Bank (NHB) increasing refinancing limit to INR300b (from INR240b), and now (d) RBI opening up an additional window to borrow. Cumulatively, this should allay investor concerns of large rollovers of short-term liabilities.
• Post the monetary policy announced earlier this month, this circular is the first communication from RBI that sets a positive tone for NBFCs. We reiterate that the ALM issue is largely toward infrastructure financing entities and to some extent HFCs (due to the lack of long-term money availability). Our preferred picks are HDFC, SHTF, MMFS and LICHF.