It proposes Liquidity Coverage Ratio in all Non-Banking Financial Companies (NBFCs)
Major Highlights of RBI’s Proposal
RBI’s Observation on NBFCs importance
Background for RBI’s proposal of guidelines for NBFCs
What is NBFCs?
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares or stocks or bonds or debentures or securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods or providing any services and sale or purchase or construction of immovable property.
What is Liquidity Coverage Ratio (LCR)?
It refers to the proportion of highly liquid assets held by financial institutions, to ensure their ongoing ability to meet short-term obligations. This ratio is essentially a generic stress test that aims to anticipate market-wide shocks and make sure that financial institutions possess suitable capital preservation, to ride out any short-term liquidity disruptions that may plague the market.
Pic courtesy: The Financial Express
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