The ministry of finance (MOF) has assured additional support of Rs 5,000 crore for the non-banking finance companies In a letter to finance industries development council, the representative body for the NBFCs ministry of finance has said the Stressed Assets Stabilisation Fund of Industrial Development Bank of India which would function as a special purpose vehicle (SPV) would issue government guaranteed securities as per requirement, subject to a total amount of securities outstanding not exceeding Rs 20,000 crore with an additional Rs 5,000 crore, if needed.
These securities would be purchased by the Reserve Bank of India and funds would be used by the SPV to acquire only investment grade commercial papers (CPs) and non-convertible debentures of NBFCs.
The government of India has issued guidelines for pricing and operation of the scheme to the SASF Trust in consultation with the Reserve Bank of India. The funds will be used by NBFCs for meeting adverse asset liability mismatches and not for supporting business growth or asset expansion.
In another important development at this meeting, Amitabh Verma, joint secretary, min of finance is reported to have told the FIDC representatives that the other long pending requirements of NBFCs, such as lower risk weightage for less risky asset classes, proper legal frame work for recovery and parity in tax matters would also receive favourable consideration, so as to enable NBFCs to play a more meaningful role in last mile credit delivery.
?The SPV scheme that has come up has not shown an overwhelming response. Liquidity problems still persist. The SPV scheme is slightly costlier to access. We are able to avail the funds at a much cheaper rate. The whole problem is the liquidity constraint in the long term, however, short term liquidity constraints are slightly minimised by the opening up of such windows,? noted V Ravi, chief financial officer with Mahindra Finance Ltd.
At a meeting between FIDC, Indian Banks Association (IBA), public sector banks, ministry of finance and government of India held in Delhi, during the second week of February, leading public sector banks reaffirmed their commitment to fund NBFCs which do asset financing .
This was following the meeting held in January relating to the funding for NBFCs involved in financing commercial vehicles, in the wake of the second stimulus package announced by the Government of India.
TS Narayanaswamy, chairman, IBA and CMD, Bank of India assured the FIDC representatives that the banking sector was not averse to funding NBFCs and would reach out even more to the asset financing NBFCs.
Similar sentiments were echoed by OP Bhatt, chairman, State Bank of India, Mallya,chairman and managing director of Bank of Baroda, MV Nair, chairman and managing director of Union Bank of India and Mahajan, chairman and managing director of Canara Bank, who were present at the meeting.
A banking analyst said the government stimulus package has provided some liquidity to the non-banking finance companies and currently there is also an increase in inquiries for some of the securities from public sector banks.