Chinmaya IAS Academy – Current Affairs Chinmaya IAS Academy – Current Affairs
Related Articles
‘Focus on equity for long-term funding’
The on-going crisis in IL&FS has made Reserve Bank of India (RBI) to consider tightening the norms of asset-liability management (ALM) of non-banking finance companies (NBFCs). The RBI observed that those entities were relying heavily on short-term funds for lending to long-term projects.
“I would like to urge all the financial firms to place greater reliance on equity and other mode of long term finance for funding of long- term assets rather than relying excessively on short-term wholesale paper, chasing lower marginal cost of funding in order to retain or acquire market share. This is a myopic strategy,” RBI deputy governor Viral Acharya said in the post policy press conference. N.S. Vishwanathan, another Deputy Governor, said there was a need to tighten NBFCs’ asset-liability management norms.
“We are looking at strengthening the ALM guidelines so that we can avoid this rollover risk going forward,” Mr. Vishwanathan said.
Rapid growth of NBFCs
He said there had been a rapid growth of NBFCs in the last couple of years and some of them had increased their market borrowing by issuing commercial papers, which resulted in asset-liability mismatch. He, however, added that isolated events should not be seen as having system-wide implications and the sector was overall quite strong with a robust regulatory framework. RBI Governor Urjit Patel said the government’s intervention in the IL&FS crisis was timely and appropriate. “The well-structured institutional measures taken by the Central Government in the IL&FS case have been timely and appropriate,” Dr. Patel said
Source : https://www.thehindu.com/todays-paper/tp-business/nbfcs-stronger-asset-liability-norms-coming/article25139523.ece
