In an indication of how risk-averse they are to the shadow banking space, banks on Thursday bid for just half the funds meant to be invested in NBFCs and MFIs. While Rs 25,000 crore worth of funds were on offer via TLTRO2.0, banks bought just Rs 12,850 crore worth of funds. This is despite the breather on priority sector lending against the funds invested which would allow them to earn a better yield.
For perspective, banks have been parking around Rs 7 lakh crore with the Reserve Bank of India (RBI) in the reverse repo window although it fetches them just 3.75%. The funds borrowed via TLTRO2.0 are avalailable at the repo rate of 4.4%. The RBI on Thursday said it would review the auction results.
Bankers said the rules mandating them to invest a certain share of the funds in smaller NBFCs and MFIs were a deterrent given the paucity of high–quality assets. Banks must invest 10% of the funds in debt instruments issued by MFIs, 15% in NBFCs with assets of Rs 500 crore and below, and 25% in NBFCs with assets of between Rs 500 crore and Rs 5,000 crore. “If we borrow Rs 2,000 crore, we need to lend Rs 300 crore to NBFCs with assets below Rs 500 crore and we maynot find good assets,” a banker explained.
Moreover, as one banker pointed out, banks already have a fairly large exposure to NBFCs; at the end of December, 2019, banks had lent an outanding amount of just over Rs 7 lakh crore to the sector. While some of this would to highly-rated companies, a fair part may not, bankers explained adding some NBFCs had exposure to the real estate sector.
NBFCs have been asking for a bail-out in the form of a government credit guarantee or a TARP –like structure. On Thursday, Icra said it expects securitisation volumes for NBFC-MFIs to be impacted significantly in 2020-21 as the disruption in the economy hurts their operations.