NBFC Crisis: Finance Ministry Tuesday issued detailed guidelines for public sector banks to take over high quality pooled assets of non-banking finance companies (NBFCs). In her maiden budget speech, Nirmala Sitharaman has last month announced a Rs one lakh crore mega guarantee scheme for public sector banks if they want to take over assets of financially sound NBFCs.
"For purchase of high-rated pooled assets of financially sound NBFCs, amounting to a total of Rs 1 lakh crore during the current financial year, the government will provide one-time six months’ partial credit guarantee to public sector banks for first loss of up to 10 per cent," Nirmala Sitharaman had said in the Lok Sabha.
Following the budget announcement, the Reserve Bank of India has announced a series of measures to boost the availability of money for NBFCs. It has also made available a credit line of Rs 1.34 lakh crore for these companies. addition to these measures, National Housing Bank (NHB) also announced a Rs 10,000 crore credit line to housing companies for lending to the affordable housing segment. The credit line announced by the NHB early this month was in addition to two existing credit lines of the bank.
India’s shadow banking sector has been grappling with liquidity crunch following loan defaults by IL&FS late last year. The problem worsened as another major housing finance company DHFL also faced difficulties in honoring its payment commitments. These developments led public sector banks to hold their hand while lending to housing finance companies and non-banking finance companies. The crisis created a ripple effect in housing and real estate sector as it was already facing slowdown.
As per the new guidelines for the Union government’s partial credit guarantee scheme, the window for availing this facility will be for a period of six months or an earlier date when the banks exhaust this Rs one lakh crore limit.
Assets originated up to March 31, 2019 will only be eligible under this scheme. "These assets should be standard in the books of NBFCs/HFCs on the date of sale," said the ministry of finance.
It further said that the pool of assets should have minimum rating of ‘AA’ or equivalent at fair value prior to the partial credit guarantee by the Government of India.
These guidelines will allow housing finance companies and non-banking finance companies to address temporary asset liability mismatches resorting to distress sale of their assets.