The Reserve Bank of India (RBI) has released a draft circular on liquidity risk management for non-banking financial companies (NBFCs) in the aftermath of the IL&FS crisis. It proposes to introduce liquidity coverage ratio for NBFCs in a phased manner over 4 years starting from April 2020. It also proposes the public disclosure of liquidity risks on a regular basis to ensure transparency.

Dinanath Dubhashi, MD & CEO, L&T Finance Holding, in an interview with CNBC-TV18 spoke in detail about how the RBI circular will impact them and the industry.

According to Dubhashi, with these norms the regulator is trying to bring uniformity and dependency. The regulator is now very strongly trying to put up norms which everybody will have to adhere to so that the speculations and rumours go away.

Going forward RBI’s norms on liquidity coverage ratio will encourage consolidation in the sector, he said, adding that post-consolidation there won't be more than 30-40 strong NBFCs.

Talking about L&T Finance in particular, he said the way the company has been managing liquidity for the last two years, they are already better than the toughest of the regulation that will kick in. The same is expected to be the case with other well-run NBFCs, he added.

“For L&T Finance, if you take all our outflows and inflows and if you stress the outflows and inflows both, we are still positive, which means there is net inflow and so technically there is no requirement of LCR (liquidity coverage ratio). But even after that we maintain at given point of time Rs 3,000-4,000 crore of cash plus cash-like instruments and what is true for L&T Finance is true for at least 4-5 top NBFCs,” he said. “So won’t see any impact of liquidity coverage ratio norms on us,” he said.

RBI’s criteria is to help banks to identify quality NBFCs for lending purpose, he said.