Banks go slow on direct credit disbursals, NBFCs bet on securitisation

Liquidity needs of the non-banking financial sector will be addressed to a large extent, State Bank of India (SBI) 

has assured. The bank has also said that it will more than double its securitisation portfolio. However, the portfolio itself has to grow so that the sector doesn’t face a liquidity crunch, say experts.

Bankers are awaiting RBI’s revised guidelines on NBFCs before increasing their direct credit to the entities. However, banks have told non-banking finance companies (NBFCs) that they would block the money for a higher fee, also referred to as ‘commitment charges.’

On Wednesday, SBI said it will step up “target for purchase of good quality portfolio of assets from NBFCs,” by an additional Rs 200-300 billion. Other banks will also do so. 

Union Bank of India’s managing director and chief executive director Rajkiran Rai G said buying portfolio from finance companies have been a regular activity for the bank. Union Bank is in the final stages to acquire loans worth Rs 20 billion and this can go up to Rs 50 billion, he said.

“This time around, when the liquidity is under severe pressure, selling of portfolio to banks will release resources for NBFCs. This money could be used by them to pay off short-term debt like commercial paper,” Rai said.

The securitsation portfolio of NBFCs comprise two instruments – pass through certificates (PTC) and direct assignment (DA). PTCs are like mortgage instruments that can be transferred, whereas direct assignments are sold to entities.

In direct assignment transaction, banks buy portfolios directly from finance companies. In case of the Pass Through Certificates (PTCs), the seller (of portfolio) issues these PTCs which are subscribed by banks.  

The total securitisation portfolio of NBFCs was Rs 836 billion on fiscal 17-18, down from about Rs 900 billion in 2016-17, according to data from Icra. However, in this fiscal, there are signs of rising securitisation, with the first quarter witnessing issuance of Rs 323 billion, said Vibhor Mittal, vice-president of Icra.

“The immediate liquidity needs of the NBFC sector get addressed by this securitisation buyout. Of course, banks will be selective and the balance sheet of NBFCs would shrink as a result. But those in need of money can at least have a support,” said Karthik Srinivasan, senior vice-president of Icra.

According to Mittal, NBFCs that have priority sector assets would leverage their direct assignments to tide over their liquidity needs.

“In the current environment, balance sheet liquidity is very crucial, particularly in the Indian context, where the securitisation market is relatively small,” said Soumyajit Niyogi, associate director at India Ratings and Research. While RBI’s liquidity measures give ample liquidity to banks, which they use to buy NBFC loan books, “the current situation also strengthens the thirst of the developing securitisation market to ensure sustainable funding option along with traditional sources,” Niyogi said.

However, several NBFCs are still complaining that banks are averse to lending long-term money to them. And that may result in future liquidity shocks.

“There is a liquidity crunch taking place in the entire industry and wider system. Banks refrained from lending to NBFCs and housing finance companies (HFCs). After speaking to other players in the market, we are suddenly finding that top PSU banks are not willing to lend,” said a senior official at a housing finance company.

According to the official, banks are saying that they themselves do not have adequate liquidity, which may not be true, considering that mutual fund redemption worth Rs 900 billion has flown into banks. Also, the RBI is pumping money through bond purchases.

“Companies like ours will always have an asset-liability mismatch because we lend for long term, that is, for 15 years. There is no 15-year term loan, nor 15-year commercial paper available,” said the official, adding that bankers have told NBFCs that banks are sitting tightly on any exposure to financial institutions.

NBFCs say that banks are ready to give loans under sanctioned lines. But they are going slow on disbursals, awaiting revision in norms by the RBI for NBFCs. At the time of the monetary policy review, the RBI had indicated that it will tweak norms for finance companies in light of the liquidity crunch the market experienced on defaults by IL&FS group entities.

Confirming the move to hike commitment charges on sanctioned lines to NBFCs, one senior public sector executive said finance companies with higher ratings (AAA and AA) used to pay small fees for keeping the credit lines blocked.