Govt exempts shadow lenders from debenture reserve requirements; move to increase availability of money for lending

The move will create more of a level-playing field between shadow lenders and commercial banks which are already exempt from maintaining such reserves, the government said.

Reuters August 20, 2019 00:06:50 IST
Govt exempts shadow lenders from debenture reserve requirements; move to increase availability of money for lending
  • The NBFCs have been battling a credit crunch since IL&FS collapsed in late 2018

  • The fall of IL&FS pushed up borrowing costs for rivals and forced them to pull back on lending, hurting the availability of consumer loans

  • The companies will no longer need to maintain a 25% reserve of the value of outstanding debentures issued to the public or placed privately

New Delhi: India's non-banking financial firms and listed companies that issue debentures will no longer have to maintain a certain level of redemption reserves against them, the government said on Monday, in an effort to increase the availability of money for lending.

The non-banking finance companies (NBFCs), also known as shadow lenders, have been battling a credit crunch since IL&FS, or Infrastructure Leasing & Financial Services, collapsed in late 2018 amid fraud allegations.

Govt exempts shadow lenders from debenture reserve requirements move to increase availability of money for lending

Representational image. Reuters.

The fall of IL&FS, a major player in the market, pushed up borrowing costs for rivals and forced them to pull back on lending, hurting the availability of consumer loans. This has curbed consumer spending and hit sectors such as real estate and automaking that are big drivers of consumer demand.

The move will also make it cheaper for the shadow lenders and listed companies to raise funds and deepen the nation's bond market, the government said in a statement.

The companies will no longer need to maintain a 25 percent reserve of the value of the outstanding debentures issued to the public or placed privately, the government said.

It has also reduced the reserve requirement for unlisted companies to 10 percent of the outstanding debentures from 25 percent.

The move will create more of a level-playing field between shadow lenders and commercial banks which are already exempt from maintaining such reserves, the government said.

 

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