Stricter norms on liquidity risk management have been long due for the sector. With NBFCs contributing over 18% of system credit (and their intimate links with the banks and mutual funds, via the wholesale debt market), this is a step towards formalising their systemic importance. Sectoral and systemic stability will obviously improve. But this will happen at the cost of NIMs and, in turn, RoAAs. The impact may, however, be limited as most NBFCs are maintaining a relatively higher % of liquid assets since Sept-18. We believe liquidity troubles are possibly symptoms of larger asset quality issues (with a few NBFCs) and expect the regulator to act on this. Our preferred bets are CIFC (TP Rs 1,799, 3.5x Mar-21E ABV of 514) and INDOSTAR (TP Rs 520, 1.5x Mar-21E ABV of 346). NBFCs have long enjoyed a regulatory arbitrage over banks (LCR/SLR requirements and Stress Recognition). Over the years this gap has narrowed, starting with the application of the 90dpd rule. In the aftermath of the IL&FS; default, the financial system (especially NBFCs) faced an acute liquidity crunch. We expected the regulator to pen fresh norms on liquidity mgt for NBFCs (refer to our note Not all in the same boat).