Economic Survey suggests ‘dynamic health index’ for NBFCs to ensure crisis alert

News:The Economic Survey has suggested the use of a ‘health score’ index for non-banking finance companies(NBFCs).

Facts:

About Health Score Index:

  • The proposed Health Score Index will aim to provide an early warning signs for liquidity crisis in a non-banking finance company(NBFC) to tackle the problem of financial fragility.
  • The Index will use key financing parameters of refinancing risk such as a) Asset Liability Management (ALM) Risk b) Interconnectedness Risk c) Financial and Operating Resilience of an NBFC and d)Over dependence on short-term wholesale funding.
  • The index can range from -100 to +100 with higher scores indicating higher financial stability of the firm/sector.
  • Further,the index can also be used by policy makers to allocate scarce capital to stressed NBFCs in an optimal way to alleviate a liquidity crisis.
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