Banks keep their distance; NBFCs get Rs 25k cr more

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New Delhi: To arrest the slowdown in commercial vehicle sales, the government on Friday cajoled public sector banks to provide a special line of credit to the non-banking finance companies (NBFCs), though bankers were not too enthused by the idea.

In a meeting with finance ministry officials on Friday, NBFCs and state-owned banks explored ways to enhance lending to end customers buying commercial vehicles. NBFCs argued that they should be provided funds at attractive rates, while banks said commercial vehicle sales were down not because of a lack of credit but demand destruction in the wake of the slowdown, sources who attended the meeting said.

Meanwhile, the Union Cabinet designated Industrial Development Bank of India (IDBI) to provide liquidity of up to Rs 25,000 crore to non-deposit taking systemically important NBFCs, home minister P Chidambaram said on Friday.

The Stressed Assets Stabilisation Fund of IDBI would issue securities to the Reserve Bank of India subject to a total amount of securities outstanding not exceeding Rs. 20,000 crore with an additional Rs 5,000 crore, if needed. SASF would use these funds to acquire investment grade commercial paper and non-convertible debentures of the NBFCs, which can use these funds only to repay existing liabilities.

“The usefulness of this facility will be clear only once tenor, pricing and spread is worked out”, managing director of a leading NBFC said, asking not to be quoted. He said NBFCs were keen to get term funding.

In the second stimulus package last week, the government has announced three measures to improve the liquidity position and funding options of NBFCs. While setting up a SPV was one measure, the government also opened the external commercial borrowing window for NBFCs financing infrastructure projects. A special line of credit for commercial vehicle financing was the third measure.

Friday’s meeting with the banking joint secretary was attended by representatives of major nationalised banks, Indian Banks Association and NBFCs, including Tata Motors Finance, Shriram Transport Finance, Sundaram Finance, Bansal Credits, and Finance Industry Development Council, a self-regulatory body of NBFCs. “We already give loans to NBFCs based on their credit rating and would continue to do so. The interest rates would be market-driven”, said Punjab National Bank CMD KC Chakrabarty.

A senior banker who attended the meeting said the share of NBFCs in commercial vehicle financing is too small. “They claimed it is 25%”, he said, adding that a separate credit line would not help much.

Liquid & dry