One-time credit guarantee: Public sector banks to gain more than NBFCs

Focus on asset quality takes precedence over liquidity infusion

Street sentiment for top-rated non-banking financial companies (NBFCs) such as Shriram Transport and M&M Financial Services (up about 5 per cent each) were positive on the government’s one-time credit guarantee to public sector banks (PSBs) for purchase of pooled NBFC assets. The rest of the NBFC pack, however, did not react much.

On the contrary, the CNX Nifty PSU Bank index was among the top sectoral gainers, up 1.7 per cent on Wednesday, led by State Bank of India, Bank of Baroda, Canara Bank, and Bank of India which rose in the range of 1-3 per cent.

The dichotomy in stock reaction is partly explained by the fact that the guarantee scheme significantly emphases on quality of assets that banks can buy from NBFCs.

A deeper reading of norms suggest that the scheme, perhaps, leaves more room for PSBs to negotiate on the pool of assets that they can source from NBFCs. In other words, it could be seen as offering more asset quality comfort to PSBs rather than injecting liquidity for NBFCs.

Factors such as NBFCs and housing finance companies (HFCs) not being classified as special mention accounts (SMA) by banks for a year up to August 1, 2018, as well as NBFCs/HFCs having posted a profit in either FY18 or FY19 to qualify under the scheme, have prompted analysts to believe the facility is a measure to further rationalise the securitisation process.

Barring Dewan Housing Finance, which incurred a loss in FY19, the rest of the listed pack should qualify under the scheme.

Likewise, the norms are also exacting in terms of quantum that could be sold down to PSBs, that is, 20 per cent of their standard assets as on March 31, 2019, subject to a cap of Rs 5,000 crore.

 

It needs to be seen how many NBFCs will benefit from the scheme, given that for names such as Indiabulls Housing, securitisation accounted for 22 per cent of its funding profile in Q1, while for PNB Housing, it stood at 15 per cent.

“The immediate impact may be on margin, even as these go a long way in providing comfort to lenders,” say analysts at Kotak Institutional Equities.

Analysts at Motilal Oswal Financial Services say that despite many measures introduced to generate liquidity, they remain cautious on the near- to medium-term prospects.

Valuations of NBFC stocks, which have melted 15-30 per cent year-to-date, have been factored in by the Street.