Monday, October 8, 2018

IL&FS fall out : RBI to tighten NBFC norms

RBI will tighten norms for NBFCs post IL&FS fall out. When banks were struggling with bad loans and low capital buffers, non-bank lenders had rushed to tap demand for long-term financing to build roads, power plants and homes. But these lenders borrowed from the short-term money markets to finance long-term loans, raising the risk of defaults due to cash flow mismatch.

The central bank last week warned stricter regulations are in the offing to ward off default risks rising from the so-called asset liability mismatch. Depending on short-term debt to garner a bigger share of the South Asian nation’s lending market is a myopic strategy. The regulator is looking at strengthening guidelines for non-bank lenders to avoid rollover risks.

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