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Banks for adding investment-grade NBFCs in guarantee scheme

New Delhi, Bankers on Monday suggested to Finance Minister Nirmala Sitharaman that those NBFCs having investment grade ratings but with AA rated assets be included in the partial credit guarantee scheme for NBFCs to provide them liquidity.

"Banks have purchased assets to the tune of Rs 17,000 crore from the NBFCs under the direct pooled buy-out so that NBFCs also get the liquidity. These are good assets and they have AA ratings. Rs 15,455 crore worth of assets have been identified under the partial buy-back pool guarantee and scrutinsed by the banks to be in order and now the concerned NBFCs have to bring their the ratings into the scheme.

"Today all the bankers suggested that there are some NBFCs who have a good pool but they do not have good rating on their own, so there those NBFCs having investment grade ratings should also be included in the scheme (partial loan guarantee scheme) so that their AA rated pools also can be considered for infusing liquidity even if they (the NBFCs) themselves do not have a strong rating," Finance Secretary Rajeev Kumar said at the media briefing after Sitharaman took stock of credit and retail loan situation from the PSBs.

Atanu Chakraborty, Secretary, Department of Economic Affairs said: "To ensure that NBFCs get adequate liquidity, a pool of assets with NBFC is proposed to be bought out by banks backed by first loss of government guarantee up to 10 per cent. Banks have expressed that rating requirement to be brought down to investment grade so that clarification, the Department of Financial Services will issue."

There are two types of ratings -- one on the pool and one on the NBFCs themselves. Currently, banks only consider those NBFCs who have got themselves a high rating than investment and also their AA rated assets.

The Finance Minister said: "We are allowing all the suggestions of the banks and will look into it."

India has operationalised a partial guarantee scheme announced in the budget for non-banking and housing finance companies (NBFCs and HFCs), which will allow state-run banks (PSBs) to purchase their assets.

It is aimed at providing liquidity support to avoid distress sale of assets in a sector facing a shortage of cash due to asset-liability mismatch. The stress on NBFCs and HFCs is seen as a key reason for a slowdown in the economy, as it has caused reduced credit flow to small busineand consumers.

As per the guidelines of the scheme announced in the budget, the Department of Economic Affairs will provide government guarantee of up to 10 per cent of the fair value of assets purchased by a bank from a stressed NBFC or HFC. The scheme is capped at Rs 1 lakh crore and will be open for up to six months.

NBFCs will have to pay a fee to the government, at 0.25 per cent per annum of the fair value of assets sold to banks. They will be able to sell 20 per cent of standard assets, worth up to Rs 5,000 crore, as on March 31.

Assets sold must be at least AA or equivalent rated and the NBFC/HFC selling assets should have appropriate capital, net NPAs of less than 6 per cent and been profitable for the last two financial years.
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