RBI cancels registration of 31 NBFCs

The Reserve Bank of India (RBI) has cancelled the Certificate of Registration of 31 non-banking financial companies (NBFCs) amidst a liquidity squeeze.

The move comes days after the central bank eased liquidity norms for banks in order to release additional funds to NBFCs. Banks have been permitted to raise their exposure to a single NBFC that doesn’t finance infrastructure to 15 per cent of capital from 10 per cent until the end of the year, thus making more funds available for big companies such as Housing Development Finance Corporation and Bajaj Finance

NBFCs have been under pressure recently due to fears of a liquidity crisis, high valuations and asset liability mismatches. The RBI relaxed liquidity norms to ease the strain in the financial markets and allow more bank lending to NBFCs, which are facing asset-liability mismatches.

The move is expected to free up as much as Rs50,000 crore for lending to the sector as it grapples with refinancing maturing commercial paper and short-term loans. 

RBI’s measures on Friday follow a liquidity scare in the shadow banking system after IL&FS defaulted on payments, throwing the markets into turmoil. 

RBI also cancelled Certificate of Registration of 31 NBFCs in exercise of powers conferred on it under Section 45-IA (6) of the Reserve Bank of India Act, 1934. Accordingly the registration of the following companies stands cancelled with immediate effect: 

RBI has directed these companies not to transact business of a non-banking financial institution, as defined in clause (a) of Section 45-I of the RBI Act, 1934 forthwith.