Funding challenges may rise for NBFIs: Fitch
Funding costs for India’s large non-banking financial institutions (NBFIs) could rise as the Reserve Bank of India’s (RBI) new securitisation norms would hit the direct assignment transactions, a key fund-raising route for NBFIs, according to rating agency Fitch.
RBI’s final guidelines for securitisation and direct assignment, issued early this week, impose curbs on providing credit enhancement for direct assignment of loan receivables.
Direct assignment is a bilateral portfolio sale. There is no special purpose vehicle (SPV) as buyer. An operating entity like a bank or mutual fund buys assets. In securitisation, the SPV issues receipts or pass through certificates to investors.
The guidelines may force NBFIs to virtually abandon the popular “direct assignment” route that has accounted for 10-40 per cent of their funding, Fitch said in a statement. In the wake of the new norms, NBFIs may have to move to more capital-intensive securitisation deals or more costly senior debt.
The guidelines come amid fears that regulatory tightening may result in a slowdown in the flow of funds from the traditional sources—commercial banks and debt mutual funds.
It may consequently be difficult for NBFIs to maintain their above-average loan growth compared with the banks, and instead force them to maintain greater liquidity on their balance sheets in the face of weaker funding flexibility.
The heaviest impact could be on Shriram Transport Finance Co Ltd (‘Fitch AA(ind)’/Stable) and Magma Fincorp Ltd, whose off-balance sheet assets were 34 per cent and 40per cent, respectively, of assets under management at end-March 2012.