NBFCs Increase Purchases of Short-Term Government Securities to Meet LCR Norms

NBFCs Increase Purchases of Short-Term Government Securities to Meet LCR Norms

Non-banking financial companies (NBFCs) are ramping up their purchase of short-term government securities in preparation for compliance with liquidity coverage ratio (LCR) norms set by the Reserve Bank of India (RBI). These norms require NBFCs to maintain a 100% LCR by December 1, 2024, to ensure they have adequate high-quality liquid assets (HQLAs) to survive a 30-day liquidity stress scenario.

NBFCs and LCR Requirements

RBI’s LCR guidelines apply to all non-deposit-taking NBFCs with assets of Rs. 10,000 crore or more, and all deposit-taking NBFCs, regardless of their size. The LCR requirement was initially set at 50% when introduced in December 2020 and is now set to reach 100% by December 2024.

NBFCs are stepping up investments in short-term government bonds to meet this mandate, although their current holdings in government securities are smaller compared to banks, insurance companies, and pension funds. "While our share of government securities may seem small compared to other institutions, we've made significant progress," a treasury official from a major NBFC stated, indicating that this move is critical for the sector but may have a limited impact from a broader market perspective.