The hike in limit comes even as housing finance companies (HFCs), an important segment of non-banking financial companies (NBFCs), have availed of only about Rs 12,000 crore-Rs 14,000 crore from the NHB since July against the over Rs 23,000 crore sanctioned.
The Reserve Bank of India (RBI) is learnt to have allowed the National Housing Bank (NHB) to raise its refinance limit to Rs 50,000 crore from Rs 30,000 crore for its current financial year that started on July 1. The move will substantially improve the financial might of the NHB, an arm of the RBI, to step in should the liquidity situation worsen, especially for small players, in the coming months. The hike in limit comes even as housing finance companies (HFCs), an important segment of non-banking financial companies (NBFCs), have availed of only about Rs 12,000 crore-Rs 14,000 crore from the NHB since July against the over Rs 23,000 crore sanctioned.
The enhanced limit suggests that both the government and the regulator want to make ample liquidity available, conscious of the fact that NBFCs face redemption/rollover pressure at the end of December and March quarters, said an industry source. The advance corporate tax payouts in December also raises their need for funds. “The enhanced limit may not be used up, but it will add an extra layer of comfort to markets that are still worried about the availability of liquidity,” said another source. It would also serve as a confidence-boosting measure for other lenders that have turned extra cautious in their exposure to NBFCs after IL&FS defaulted on its repayment obligation. In October, just after the IL&FS crisis flared up and concerns about the repayment ability of some HFCs, including DHFL and Indiabulls, started to depress market sentiment, the NHB had raised its refinancing target for 2018-19 by 25% to Rs 30,000 crore from the initial aim of Rs 24,000 crore.
Flagging a looming liquidity crunch in the third and fourth quarters, the finance ministry had told the corporate affairs ministry in late October that about Rs 2 lakh crore of debt of NBFCs, including HFCs, was due for redemption or rollover by December. If the pace of fundraising witnessed in the first half of October was maintained, it could lead to a funding gap of around Rs 1 lakh crore by end-December, it had cautioned. Additional commercial paper and non-convertible debentures worth Rs 2.7 lakh crore would be due for redemption in the last quarter of this fiscal, which could raise their need for financing, the finance ministry had then said.
Economic affairs secretary Subhash Chandra Garg recently told FE that while solvency of NBFCs was no longer a big issue, it was worrying that NBFCs — which had accounted for a large share of incremental credit (and captured the lending space ceded by stressed state-run banks) — weren’t able to grow at the pace they were earlier. As such, liquidity crunch has weighed on the banking system in recent months. According to CARE Ratings, despite the OMO (open market operation) purchases of Rs 35,000 crore in December (until December 21), the liquidity deficit in the system persisted for 11th straight week. In fact, the average liquidity deficit has almost doubled to Rs 1,49,635 crore during the week ended December 21 from Rs 84,737 crore in the previous week.
The deficit can be attributed to the expansion in currency circulation, fuelled by the wedding season and year-end demand. The lingering liquidity constraints faced by NBFCs and bank credit growth exceeding deposit growth are two other reasons for the deficit, the report said. Since the business model of NBFCs/HFCs heavily relies on borrowing from banks and mutual funds (MFs) to finance their loans, the IL&FS default — which led to sale of debt and redemption in MFs with outflows in excess of Rs 2 lakh crore in September — resulted in NBFC funding sources drying. Credit to NBFCs jumped as much as 55.6% during the period up to October 26 from a year earlier, while the overall non-food loans grew just 13.4%, showed the RBI data. Concerns about the ability of smaller NBFCs to raise funds with ease, however, persist.