Only big PSBs equipped to buy NBFC pooled assets
The Centre has allowed onetime, six months' partial credit guarantee to public banks for their first loss of up to 10 per cent
July 09, 2019, 08:38 IST
Only the biggest public-sector lenders such as State Bank of India and Bank of Baroda may be able to buy portfolios from NBFCs since most other peers may not be equipped to evaluate such securities amid a series of rating downgrades. Also, a six-month cover offered in the budget may not be much of a cushion since delinquencies peak in 24-30 months.
The Centre has allowed onetime, six months' partial credit guarantee to public banks for their first loss of up to 10% for purchase of high-rated pooled assets of Rs 1 lakh crore. This is likelyto provide better-run NBFCs access to liquidity.
Stronger NBFCs and home financiers are, however, not facing major issues in securitisation.
"While more clarity is awaited, the six-month loss guarantee is a tad too short to provide comfort to rating agencies and banks as pooled portfolio delinquencies usually peak in 24-36 months," wrote Nilanjan Karfa and Harshit Toshniwal of Jefferies.
"Purchase of Rs 1 lakh crore of pooled assets in six months appears difficult too. Given little trust in credit ratings following recent rating downgrades, only larger public sector banks like SBI or BoB may have the necessary skills to evaluate loan pools." Banks are the largest buyers of pooled assets from NBFCs given the liquidity issues faced by the sector since September 2018.
The partial credit guarantee from the government would help NBFCs raise funds from PSU banks, providing them much-needed funding support.
"With the guarantee being available for only six months, the preference could be for relatively shorter-term retail assets," said Icra in a report.
The government has taken a number of steps to revive the NBFC sector. It has allowed all NBFCs to directly participate on the TReDS platform. It has strengthened the regulation over NBFCs by giving authority to RBI and also moved the regulatory functions in the housing finance sector from NHB to Mint Road.