SBI Cap to float special purpose vehicle for NBFC debt purchase, says RBI

The government, on May 21, had said it will support creating a SPV that will buy such papers from NBFCs

The Reserve Bank of India (RBI) on Wednesday said SBICAP, the capital markets wing of State Bank of India (SBI), will set up a special purpose vehicle (SPV) to purchase the short-term papers, maturing within three months and rated as investment grade, from non-banking financial companies (NBFCs).  

“The facility will not be available for any paper issued after September 30, 2020 and the SPV would cease to make fresh purchases after September 30, 2020, and would recover all dues by December 31, 2020; or as may be modified subsequently under the scheme," the central bank said in a statement on its website. 

The government on May 21 said it would support creating an SPV that would buy such papers from NBFCs. However, senior executives of NBFCs had expressed their disappointment about the proposal as they were expecting two-three years support at the minimum.  

The government’s statement that time showed that instead of directly purchasing bonds from NBFCs, it would contribute just Rs 5 crore capital in the SPV, while the setting up of the unit was relegated to a “large public sector bank”. This SPV will manage a stressed asset fund (SAF), which will issue interest-bearing special securities guaranteed by the government to the RBI. With the proceeds of this issuance, the SAF will buy bonds of NBFCs and housing finance companies (HFCs) with a residual maturity of three months. This essentially means that RBI money will be used to buy the bonds and that there is no financial implication as such for the government until the guarantee is invoked.   

While the government had originally mooted an overall purchase of Rs 30,000 crore, the RBI, in its statement, did not mention of any such limit. It just spelt out the eligibility criterion for NBFCs that could access the facility. Most of these were also spelt out by the government in its May communication.  

The RBI said to be eligible under the scheme, NBFCs and housing finance companies (HFC) must have a minimum capital adequacy ratio of 15 per cent and 12 per cent respectively, as on March 31, 2019. The net non-performing assets should not be more than 6 per cent as on March 31, 2019. Also, the entities must have made net profit in at least one of the last two preceding financial years (i.e. 2017-18 and 2018-19). The entities availing this facility should not have been reported under Special Mention Account (SMA)-1 or SMA-2 category by any bank for their borrowings during last one year prior to August 01, 2018. The NBFCs must be rated investment grade by a rating agency. 

“They should comply with the requirement of the SPV for an appropriate level of collateral from the entity, which, however, would be optional and to be decided by the SPV,” the RBI said.  The government had in May said the scheme would be a one-stop arrangement between the SPV and the NBFCs without having to liquidate their current asset portfolio. The scheme would also act as an enabler for NBFCs to get investment grade or a better rating for the bonds issued. It would be easier to operate and also augment the flow of funds from the non-banking sector. 

However, industry participants were disappointed with the scheme that time.  

According to Karthik Srinivasan, senior vice-president, ICRA, the scheme was giving another three months to some smaller NBFCs that are not in a position to mobilise money from banks and debt capital markets on their own. Entities which have debt repayments in the near term and are unable to refinance them may avail of this facility.  

“As of now, it seems like a short-term liquidity measure for NBFCs. The number of NBFCs availing of this scheme will depend on the rate and amount they are getting,” Srinivasan had commented.