Govt’s liquidity measure a big relief for NBFCs: Lakshmi Iyer, Kotak MF

The additional 0.5% allowance given to the NBFCs and HFCs on an incremental basis would mean a release of nearly Rs 55-60 odd thousand crores additional liquidity from the banking system to NBFCs Lakshmi Iyer, CIO-Fixed Income & Head-Products, Kotak Mutual Fund.

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Do you think this is big material relief and how exactly would it help resolve the liquidity crisis in the system?

This is good relief for the ailing NBFC sector which was almost getting starved of funds. Selectively, NBFCs have started getting money. The first positive measure was the LCR being increased from 11% to 13%. That reduced the bank CD issuances in the system and this additional 0.5% allowance given to the NBFCs and HFCs on an incremental basis would mean a release of close to 55-60 odd thousand crores additional liquidity from the banking system to NBFCs. This definitely is a positive move.

In simple terms, if the liquidity norms are tweaked, what will that do to the bond market? The bonds yields have come down to almost 8% right now. I do not know why there is so much of concern for liquidity.


I completely agree with you. This is specifically intended or directed towards the NBFC/HFC sector. So, this is to calm the yields. In corporate bond markets, the spreads had widened and good quality NBFCs were raising money almost 2% above sovereign rates which used to be about 1% or lower than 1%. So, this news is specifically aimed at the corporate bond market within specific segments to prevent a material impact really on the sovereign bond yields.

For sovereign bonds, it is going to be life as usual, tracking crude prices, tracking INR which could be under a little bit of pressure today. But even the single borrower limit has been enhanced from 10% to 15% to sooth this particular sector.