Coming to the rescue of cash-strapped non-banking financial companies (NBFCs), State Bank of India on Tuesday decided to buy their assets to the tune of Rs 45,000 crore, a move that will provide liquidity support to the companies in the sector facing headwinds after a series of loan defaults by Infrastructure Leasing & Financial Services (IL&FS) group firms.
The decision of SBI, Economic Affairs Secretary Subhash Chandra Garg said in a tweet, should alleviate liquidity concerns of non-banking financing companies (NBFCs) to a great extent.
NBFCs along with mutual funds have been facing a liquidity crunch following a series of loan repayment default since late September by IL&FS and its group companies.
"Bank had initially planned for a growth of Rs 15,000 crore through portfolio purchase during the current year which is now being enhanced. As per the bank's internal assessment, there may be an opportunity to buy additional portfolio in the range of Rs 20,000 (crore) to Rs 30,000 crore," SBI said in a statement.
SBI today stepped up substantially a facility for purchasing portfolio of assets from NBFCs to provide liquidity to NBFCs. SBI would buy such portfolios up to a total amount of Rs. 45000 cr. This measure should alleviate liquidity concerns to a great extent.
Speaking to news agency Press Trust of India, SBI Managing Director PK Gupta said, "It is a good commercial opportunity for the bank to increase the loan portfolio as NBFC assets are available at attractive rates."
It will benefit both State Bank of India and the NBFC sector as they get the much-required liquidity while the bank will get a good loan portfolio, Mr Gupta explained.
"SBI today stepped up substantially a facility for purchasing portfolio of assets from NBFCs to provide liquidity to NBFCs. SBI would buy such portfolios up to a total amount of Rs 45,000 crore. This measure should alleviate liquidity concerns to a great extent," Mr Garg tweeted.
Earlier on September 23, SBI Chairman Rajnish Kumar had allayed concerns over the liquidity position of NBFCs and assured financial institutions that lending would not be curtailed to the sector.
SBI said it has stepped up target purchase of "good quality portfolio of assets from NBFCs as it believes that there is good opportunity to expand its loan portfolio at attractive rates".
The bank is looking for opportunities both in priority and non-priority sectors, it said.
NBFC stocks have wilted due to heavy selling pressure following the IL&FS defaults since late September as investors raised concerns over the rising cost of borrowing for them amidst IL&FS crisis.
On Monday, National Housing Bank (NHB), which regulates the non-banking finance companies, had said that it will enhance the refinance limit for NBFCs to Rs 30,000 crore to inject liquidity.
NHB had earlier set the refinance target at Rs 24,000 crore for non-banking financial companies for 2018-19. In the second half of September, it came to light that IL&FS group defaulted on a short-term loan of Rs 1,000 crore from Sidbi, while a subsidiary also defaulted on Rs 500 crore dues to the development finance institution.
While IL&FS has nearly Rs 35,000 crore consolidated debt, IL&FS Financial Services has Rs 17,000 crore of debt, which sits as a standard asset for most of the lenders, according to a report.
The group has seen its various long-term and short-term borrowing programmes downgraded to 'default' or 'junk' grades by credit rating agencies, even as the regulators are also probing alleged delay in disclosure about certain loan defaults.
Capital markets regulator Sebi, the Reserve Bank of India, the corporate affairs ministry and the finance ministry have received complaints about alleged wrongdoings at IL&FS and its various group entities, including the listed ones followed by several resignations at the group including its CEO and MD Ramesh Bawa.
The board of the IL&FS was also dissolved and the government took control of the company by constituting a new six-member board under Uday Kotak, managing director and CEO of Kotak Mahindra Bank.
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