Few takers for Reserve Banks special liquidity facilities

Written by fe Bureaus | Mumbai | Updated: Aug 29 2009, 04:05am hrs
Non-banking financial companies (NBFCs) have largely avoided using the special liquidity facility extended by the RBI to tackle their liquidity shortage.

RBIs annual report for 2008-09 shows despite the tight monetary conditions from October 2008, the range of utilization was in the range of 0.2-8.4% between November 2008 and July 2009.

The government had announced the setting up of an SPV for addressing the temporary liquidity constraints of NBFCs. The SPV was authorised to sell government guaranteed securities to the RBI and use the money generated to buy investment grade commercial papers and non-convertible debentures from the NBFCs. This transaction was expected to help the NBFCs tide over their temporary liquidity mismatch, when the credit squeeze set in the economy by October 2008.

The total liquidity support from the Reserve Bank through this mechanism was set at Rs 20,000 crore with an option to raise it by a further Rs 5,000 crore, the RBI had announced. The SPV could buy papers issued by NBFCs up to September 30, 2009. Under the terms of its operation, the SPV would stop making fresh purchases after December 31, 2009 and would recover all dues by March 31, 2010, it added.

The RBI had also allowed banks to avail liquidity support under the LAF for the purpose of meeting the funding requirements of mutual funds (MFs), NBFCs and housing finance companies (HFCs) through relaxation in the maintenance of SLR up to 1.5% of their NDTL.

This facility, with a limit of Rs 60,000 crore, is available up to March 31, 2010. Banks have utilised only a small portion of their limit so far, the RBI said. During November 2008-July 2009, utilisation was in the range of 0.2-8.4%.