NBFC health control to limit loans

MUMBAI: The Economic has suggested that policy makers should use dynamic health, which captures liquidity risks in non-bank entities Finance companies (NBFC), to avoid finances in the. He added that the regulator could use the score to limit the amount that NBFCs could borrow from other institutions to reduce systemic risks.

The health monitoring index would take into account the risk of refinancing, which would be determined by the degree of dependence on short-term financing and the strength of the NBFC balance.

At a most fundamental level, the root cause of crisis in the NBFC sector could be traced to over-dependence of NBFCs on short-term wholesale funding market. A health score would have identified the fragility in the sector even during their high-growth phase. “Overall it was found that the health score for the housing Finance sector exhibited a declining trend post-2014.”