May 24, 2019 / 2:47 PM / 4 months ago

India plans liquidity buffer at shadow banks to aid stressed sector

CCTV cameras are seen installed above the logo of Reserve Bank of India (RBI) inside its headquarters in Mumbai, India, February 7, 2019. REUTERS/Francis Mascarenhas

BENGALURU (Reuters) - The Reserve Bank of India (RBI) on Friday proposed introducing a liquidity coverage ratio (LCR) for large non-banking finance companies (NBFC) to help tackle liquidity problems in the sector.

The central bank said it planned to implement LCR, a liquidity buffer, “in a calibrated manner” over four years starting from April 2020.

The LCR is proposed for all deposit taking NBFCs, and non-deposit taking NBFCs with an asset size of 50 billion rupees ($720 million) and above.

NBFCs will have to maintain minimum high quality liquid assets of 100% of total net cash outflows over the following 30 calendar days.

Sources told Reuters this week that the central bank was concerned about liquidity issues facing some of the so-called shadow banks such as mortgage or auto lenders and wants to ensure the problems do not become a systemic issue.

The collapse of the Infrastructure Leasing and Financial Services (IL&FS) last year triggered a series a defaults across the shadow banking sector, as borrowing costs for the sector surged.

Reporting by Chris Thomas in Bengaluru

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