The report said while the importance of NBFCs in credit intermediation is growing, the IL&FS episode brought the focus on the asset liability mismatches of non-bank lenders, which poses risks to the sector as well as the financial system as a whole.
To address this, the RBI introduced the liquidity coverage ratio (LCR) requirement for all deposit-taking and non-deposit taking NBFCs with an asset size of Rs 5,000 crore and above.
The new regulation mandates NBFCs to maintain a minimum level of high-quality liquid assets to cover expected net cash outflows in a stressed scenario.
NBFCs are required to reach LCR of 100 per cent over a period of four years commencing from December 2020.
"The non-banking financial intermediation space which took up a significant share in credit intermediation after the relative passivity of public sector banks due to their impaired balance sheets, continues to show signs of restructuring of their underlying business models," RBI Governor Shaktikanta Das wrote in the foreword of the report.
While credit markets are becoming more competitive following recapitalisation of state-run banks, market funding for NBFCs is getting more discerning based on prudential concerns, he added.
The report said NBFCs were the largest net borrowers of funds from the financial system with gross payables of around Rs 8,29,468 crore and gross receivables of around Rs 66,635 crore as at end-September 2019.
A further breakup of payables showed that 48.4 per cent of the funds were obtained from banks, followed by 26 per cent from mutual fund companies and 21.3 per cent from insurance firms, it said.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.