Abhigyan

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Liquidity Risks in Non-Banking Financial Companies: An Analysis


Affiliations
1 Assistant Professor, CMS Business School, Jain University, Bengaluru, India
     

   Subscribe/Renew Journal


The purpose of the paper is to compare the liquidity profile of banks with NBFCs to examine how NBFCs perform under stringent RBI and BCBS guidelines although the business model of both are not fully identical. Three NBFC-D and three NBFC-ND-SI have been selected based on their income size in descending order. The maturity pattern of assets and liabilities indicate that all sample NBFCs reveals a positive gap and healthy gap ratio up to 1 month time bucket. The liquidity coverage ratio specifies that the stock of liquid assets are not required to service liabilities since cash inflows up to one month are more than outflows for all NBFCs. While comparing liquidity profile with commercial banks it is observed that on all the measures except Loan To Deposit ratio, NBFCs performed better despite their limited stock of public deposits. The results might change in the current year i.e. after ILF&S collapses. This paper is believed to be the first attempt discussing on liquidity risk of NBFCs.

Keywords

NBFCs, ALM, Liquidity Risk, GAP, Liquidity Ratios.
User
Subscription Login to verify subscription
Notifications
Font Size

  • Arora Amita and Kohli H K (2018). Liquidity Risk and Asset Liability Management: A Comparative Study of Public and Private Sector Banks, The IUP Journal of Applied Finance, October, 24 (4), 18-33.

  • Parida T (2019). NBFC Crisis Implication on the Financial Sector, The Indian Banker, February, VI (7), 24-29

  • RBI (2018), Trend & Progress of Banking in India, RBI, Mumbai, pp.117-128.

  • RBI (2017), Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio, Retrieved from https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11078.

  • RBI (2011), Working Group on the Issues and Concerns in the NBFC Sector Report and Recommendations, August, Mumbai

  • RBI (2012), Liquidity Risk Management by Banks, DBOD.BP.No.56/21.04.098/2012-13, November 07.

  • RBI (2019), Draft Guidelines on Liquidity Risk Management Framework for Non-Banking Financial Companies and Core Investment Companies, May 24, Mumbai

  • RBI (2006), Financial Regulation of Systemically Important NBFCs and Banks' Relationship with themfor NBFCs', DNBS.PD/CC.No. 86/ 03.02.089 /2006-07, December 12, Mumbai


Abstract Views: 315

PDF Views: 1




  • Liquidity Risks in Non-Banking Financial Companies: An Analysis

Abstract Views: 315  |  PDF Views: 1

Authors

Avijit Bakshi
Assistant Professor, CMS Business School, Jain University, Bengaluru, India

Abstract


The purpose of the paper is to compare the liquidity profile of banks with NBFCs to examine how NBFCs perform under stringent RBI and BCBS guidelines although the business model of both are not fully identical. Three NBFC-D and three NBFC-ND-SI have been selected based on their income size in descending order. The maturity pattern of assets and liabilities indicate that all sample NBFCs reveals a positive gap and healthy gap ratio up to 1 month time bucket. The liquidity coverage ratio specifies that the stock of liquid assets are not required to service liabilities since cash inflows up to one month are more than outflows for all NBFCs. While comparing liquidity profile with commercial banks it is observed that on all the measures except Loan To Deposit ratio, NBFCs performed better despite their limited stock of public deposits. The results might change in the current year i.e. after ILF&S collapses. This paper is believed to be the first attempt discussing on liquidity risk of NBFCs.

Keywords


NBFCs, ALM, Liquidity Risk, GAP, Liquidity Ratios.

References