Cash crunch sit­u­a­tion at NBFCS has im­proved, says SBI chair­man


The liq­uid­ity sit­u­a­tion of non-bank­ing fi­nan­cial com­pa­nies (NBFC) has im­proved over the past three weeks, State Bank of In­dia (SBI) chair­man Ra­jnish Ku­mar said on Mon­day.

Ku­mar said he sees no sys­temic risk at the mo­ment. “I don’t see a sys­temic risk and what­ever are the is­sues be­ing faced by the NBFC sec­tor are all very well known. But things seem to be much bet­ter to­day than they were three weeks ago,” said Ku­mar af­ter an­nounc­ing SBI’S Q2 FY19 re­sults.

The bank has al­ready sanc­tioned the pur­chase of ₹5,250 crore loans from NBFCS through the port­fo­lio pur­chase pro­gramme and an­other ₹15,940 crore is in the pipe­line, the SBI chief said.

The bank had ear­lier an­nounced that it will triple its tar­get of buy­ing stan­dard loans from NBFCS up to ₹45,000 crore in FY19. These loans are pur­chased in cash and while 90% of the loan is bought out, the rest re­mains on the books of the NBFC.

“Most of the NBFCS have been able to roll over their com­mer­cial pa­pers (CPS) and non­con­vert­ible deben­tures (NCDS) and I hope they will be able to meet their up­com­ing com­mit­ments,” said Ku­mar.

The bank’s out­stand­ing loans to the NBFC sec­tor stands at ₹1.5 tril­lion, which in­cludes the Hous­ing Devel­op­ment Fi­nance Corp (HFDC), the Power Fi­nance Corp (PFC) and LIC Hous­ing Fi­nance Ltd, he said.

Com­mer­cial banks have three kinds of ex­po­sures to an NBFC. These in­clude sub­scrib­ing to their com­mer­cial pa­pers, sanc­tion­ing a loan or a line of credit, and buy­ing ex­ist­ing loans from them.

Out­stand­ing bank credit to all in­dus­try stood at ₹27.01 tril­lion in the fort­night ended 28 Septem­ber, up 2.6% from the year-ago pe­riod, ac­cord­ing to Re­serve Bank of In­dia (RBI) data. Bank loans to NBFCS stood at ₹5.46 tril­lion in the same fort­night, up 41.5% from the same pe­riod last year.

SBI has an ex­po­sure of ₹4,250 crore to the In­fra­struc­ture Leas­ing & Fi­nan­cial Ser­vices (IL&FS) group, which is cur­rently clas­si­fied as stan­dard, Ku­mar said.

“As I said it (ex­po­sure) is all at the spe­cial pur­pose ve­hi­cle (SPV) lev­els, spread over 13-14 SPVS, and our ex­po­sure is about ₹4,000 crore and an­other ₹250 crore to the hold­ing com­pany,” said the SBI chair­man.

Asked about dis­cus­sions with the new board of IL&FS, Ku­mar said the bank will be part of the res­o­lu­tion plan and will sup­port Uday Ko­tak in his ef­forts.

The liq­uid­ity cri­sis in NBFCS sur­faced af­ter IL&FS, which had funded long-term in­fra­struc­ture projects through short-term funds, de­faulted on pay­ment obli­ga­tions and was down­graded by credit agen­cies.

SBI is await­ing clar­i­fi­ca­tions on how much cap­i­tal should be set aside for par­tial credit en­hance­ments to NBFC bonds, Ku­mar said.

Last week, RBI al­lowed banks to pro­vide par­tial credit en­hance­ment to bonds is­sued by some NBFCS, thereby en­hanc­ing the credit rat­ing of these bonds and en­abling the NBFCS to ac­cess funds from the bond mar­ket on bet­ter terms.

State Bank of In­dia chair­man Ra­jnish Ku­mar

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