The Cabinet on Thursday approved a partial credit guarantee scheme for public sector banks (PSBs) to purchase high-rated pooled assets from financially sound NBFCs and housing finance companies.
PSBs can purchase high-rated pooled assets from financially sound Non-Banking Financial Companies (NBFCs)/Housing Finance Companies (HFCs), with the amount of overall guarantee provided by the government till the first loss of up to 10 percent of the fair value of assets being purchased by banks or Rs 10,000 crore, whichever is lower.
The government has revised the minimum rating of the underlying asset pool being purchased to ‘BBB’ Plus. The scheme will cover NBFCs that slipped into special mention account (SMA) zero category during one year period prior to the August 1, 2018.
Speaking about how this would affect his company, YS Chakravarti, MD and CEO, Shriram City Union Finance, said, “For Shriram City Union Finance, there is no change in things... we are already AA rated and our pool is available under the old scheme itself. So the new amendment doesn’t do anything for Shriram City per se.”
While giving his take on SMA zero category, he said, “I am not sure even that is going to actually really help every company there. On the BBB rated pools probably the smaller NBCFs could benefit.”
“To be very honest, on the partial credit guarantee scheme so far... not a single rupee has been disbursed by any bank, sanctions have happened, but disbursements are yet to happen," he added.
He further said, “So far even AA rated pools - we are still awaiting disbursements. I think both the government and the banks may be trying their best, but then the government is still yet to provide the guarantee. I can also understand that there could be some reluctance on the part of the bankers because these are all retailed pool assets and in case something happens to the company that has originated the pool who will handle the collection. This could be one overhang that the bankers may be worried about.”
According to Chakravarti, the liquidity situation is improving. "We are seeing disbursements under term loans, which is a good sign.”