Finance Minister Nirmala Sitharaman stated that India’s central bank, Reserve Bank of India(RBI)will now given power to takes over as the regulator of Housing Finance Firms(HFFs) instead of NHB(National Housing Bank).
- The government will also provide a one-time six-month partial guarantee to state-run banks for the acquisition of up to 1 trillion rupees (USD14.6 billion) of highly-rated assets from NBFCs(Non-Banking Financial Company ).
- The financial crisis emerged from Dewan Housing Finance Corporation (DHFC) and Reliance Capital Ltd led to this decision for giving fresh fund. The cash crunch at such firms could weaken the financial system and economy given their large lending role and ties with banks, mutual funds, and insurers.
- NBFCs stocks surged after the credit guarantee announcement. Mahindra & Mahindra Financial Services Ltd and L&T Finance Holdings Ltd rose more than 5%, while Shriram Transport Finance Co. rose more than 3%.
- The RBI has also proposed plans to tighten NBFCs’ asset-liability management and liquidity coverage ratios and resisted demands from within the industry to provide a separate liquidity window for NBFCs.