With an aim to help the non-banking financial companies (NBFCs) overcome liquidity shortage, the Reserve Bank of India (RBI) has extended minimum holding period (MHP) requirement for NBFCs to raise funds via loan securitization. NBFCs have been permitted to securitise loans of over five-year maturity after holding them for six months on their books. Earlier, they were supposed to hold it for at least a year.
The relaxation in MHP criteria will primarily benefit housing finance companies (HFCs) and NBFCs, offering mortgage loans where the tenure is typically more than five years. Accordingly, these entities can raise more funds through the securitisation route, which will provide them with additional liquidity.
As per the earlier notification issued by RBI in November, the dispensation was valid till May, 2019. On a review, it has been decided to extend the dispensation provided therein till December 31, 2019. NBFCs and HFCs are facing a crisis of confidence following the default by IL&FS in late-August, which led to its takeover by the government. This, in turn, led to a liquidity crunch for the sector.