LAF window open till Sept, MFs and NBFCs to gain
In a move to help non-banking finance companies (NBFCs) and mutual funds (MFs) meet their liquidity requirements, the Reserve Bank of India (RBI) has extended its special repo window till September 30, 2009.
By ET Bureau |
MUMBAI: In a move to help non-banking finance companies (NBFCs) and mutual funds (MFs) meet their liquidity requirements, the Reserve Bank of India (RBI) has extended its special repo window till September 30, 2009. Officials at NBFCs and MFs say that although they have not been actively using the window of late, the move will provide support, in case difficulties arise on this count, in the future.
But they stressed that the need of the hour is to bring down the cost of funds (for NBFCs) as this could revive demand for credit.
���It is more an enabling provision, that once the demand picks up, NBFCs should not find themselves short of funds,��� said Ananda Bhowmick, director, Fitch Ratings. He feels that RBI has given enough indications that it expects the credit to pick up in coming months once the loan-waivers and pay-hikes in the economy become operational. On November 1 last year, RBI had announced that it would conduct the special, fixed-rate term repo under liquidity adjustment facility everyday up to a cumulative amount of Rs 60,000 crore. Banks could use this window to borrow funds at the repo rate, to onlend to credit-hit MFs, NBFCs and housing finance companies (HFCs).
This window would help several NBFCs and MFs, which were facing asset-liability mismatches and fund-raising problems, raise more money and stabilise their business. However, the lukewarm response for this special window is because of the fact that the outstanding amount under this facility as on January 23, 2009, is just Rs 920 crore.
While redemptions from fund houses have stopped ��� money is actually pouring in ��� demand for credit from NBFCs is still weak.
���This is not a window through which funds can be borrowed for running business, as it would create asset liability mismatches,��� said V Ravi, CFO at Mahindra & Mahindra Finance. ���What NBFCs really need today is availability of funds at a lower cost so that we can lend cheaper, and demand for credit will also pick up,��� he said.
But they stressed that the need of the hour is to bring down the cost of funds (for NBFCs) as this could revive demand for credit.
���It is more an enabling provision, that once the demand picks up, NBFCs should not find themselves short of funds,��� said Ananda Bhowmick, director, Fitch Ratings. He feels that RBI has given enough indications that it expects the credit to pick up in coming months once the loan-waivers and pay-hikes in the economy become operational. On November 1 last year, RBI had announced that it would conduct the special, fixed-rate term repo under liquidity adjustment facility everyday up to a cumulative amount of Rs 60,000 crore. Banks could use this window to borrow funds at the repo rate, to onlend to credit-hit MFs, NBFCs and housing finance companies (HFCs).
This window would help several NBFCs and MFs, which were facing asset-liability mismatches and fund-raising problems, raise more money and stabilise their business. However, the lukewarm response for this special window is because of the fact that the outstanding amount under this facility as on January 23, 2009, is just Rs 920 crore.
While redemptions from fund houses have stopped ��� money is actually pouring in ��� demand for credit from NBFCs is still weak.
���This is not a window through which funds can be borrowed for running business, as it would create asset liability mismatches,��� said V Ravi, CFO at Mahindra & Mahindra Finance. ���What NBFCs really need today is availability of funds at a lower cost so that we can lend cheaper, and demand for credit will also pick up,��� he said.
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