Sale of lower-rated loans by NBFCs to PSBs gets cover

Mumbai: In a move that will help liquidity-starved finance companies to raise funds, the government has tweaked a scheme where it guarantees part of the loans that public sector banks buy from finance companies. The amendment to the partial credit guarantee scheme allows banks to buy even ‘BBB-rated’ pool of loans as against the earlier requirement of an ‘AA’ rating.

In terms of the scheme announced in the Union Budget, the government guarantees first loss of up to 10% of fair value of assets being purchased or Rs 10,000 crore, whichever is lower, as agreed by department of economic affairs. This means that the

NBFC

sector can sell loans up to Rs 1 lakh crore to banks and the government will make good defaults up to 10% subject to a maximum of Rs 10,000 crore.

This facility is available to

NBFCs

(including housing finance companies) whose loans have slipped into the “SMA-0 category”. The SMA or special-mention account refers to those borrowers who are finding it difficult to pay on time but are not defaulters. Besides easing rating requirement, the government has said that banks can purchase loans from finance companies that had slipped into the

SMA-0

category one year prior to the IL&FS default last year.

Some developers said that the scheme would revive flow of credit to the real estate sector as finance companies could now sell loans advanced to builders to banks as long as they are investment grade. Earlier, banks had said that the partial guarantee facility was not getting utitlised because both the finance companies and the their borrowers were facing stress and did not meet the minimum rating requirememnt.

“The industry is hopeful that such measures will help in providing a stimulus to the real estate sector and to the economy by enhancing credit flow,” said

Anshuman Magazine

, chairman & CEO — India, Southeast Asia, Middle East & Africa,

CBRE

. The scheme will be operational up to June 6, 2030, but the finance minister can extend it. “The proposed Government Guarantee support and resultant pool buyouts will help address NBFCs/HFCs resolve their temporary liquidity or cash flow mismatch issues, and enable them to continue contributing to credit creation and providing last mile lending to borrowers, thereby spurring economic growth,” a ministry statement said. At present, the banking system is flush with funds, while finance companies are not able to avail loans. By buying loans from finance companies, banks can grow their credit portfolio and bail out stressed NBFCs.