RBI bows down before Modi… Big relief for NBFCs

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Mumbai, The Reserve Bank of India (RBI) eased the minimum holding period (MHP) norm for the NBFC sector companies to sell or securitise their loans in order to ease the liquidity crunch.

The move assumes significance as it reduces the time period that a non-banking financial company (NBFC) is required to hold on to a loan before securitising it.

According to a RBI notification, the MHP requirement has been relaxed to securitise loans with original maturity of above 5 years after retaining them for a period of six months. Earlier, they were supposed to hold it for at least a year.

However, the RBI mandated that a minimum retention requirement (MRR) for “such securitisation or assignment transactions shall be 20 per cent of the book value of the loans being securitised or 20 per cent of the cash flows from the assets assigned”.

Both RBI and central government have been taking steps to limit the liquidity crunch being faced by the NBFCs after payment defaults by Infrastructure Leasing and Financial Services Ltd (IL&FS) triggered liquidity squeeze for them.

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