Mumbai: The liquidity situation of non-banking financial companies (NBFC) has improved over the past three weeks, State Bank of India (SBI) chairman Rajnish Kumar said on Monday.
NBFCs’ liquidity situation has improved: SBI’s Rajnish Kumar
Kumar said he sees no systemic risk at the moment. “I don’t see a systemic risk and whatever are the issues being faced by the NBFC sector are all very well known. But things seem to be much better today than they were three weeks ago,” said Kumar after announcing SBI’s Q2 FY19 results.
The bank has already sanctioned the purchase of ₹5,250 crore loans from NBFCs through the portfolio purchase programme and another ₹15,940 crore is in the pipeline, the SBI chief said.
The bank had earlier announced that it will triple its target of buying standard loans from NBFCs up to ₹45,000 crore in FY19. These loans are purchased in cash and while 90% of the loan is bought out, the rest remains on the books of the NBFC.
“Most of the NBFCs have been able to roll over their commercial papers (CPs) and non-convertible debentures (NCDs) and I hope they will be able to meet their upcoming commitments,” said Kumar.
The bank’s outstanding loans to the NBFC sector stands at ₹1.5 trillion, which includes the Housing Development Finance Corp (HFDC), the Power Finance Corp (PFC) and LIC Housing Finance Ltd, he said.
Commercial banks have three kinds of exposures to an NBFC. These include subscribing to their commercial papers, sanctioning a loan or a line of credit, and buying existing loans from them.
Outstanding bank credit to all industry stood at ₹27.01 trillion in the fortnight ended 28 September, up 2.6% from the year-ago period, according to Reserve Bank of India (RBI) data. Bank loans to NBFCs stood at ₹5.46 trillion in the same fortnight, up 41.5% from the same period last year.
SBI has an exposure of ₹4,250 crore to the Infrastructure Leasing & Financial Services (IL&FS) group, which is currently classified as standard, Kumar said.
“As I said it (exposure) is all at the special purpose vehicle (SPV) levels, spread over 13-14 SPVs, and our exposure is about ₹4,000 crore and another ₹250 crore to the holding company,” said the SBI chairman.
Asked about discussions with the new board of IL&FS, Kumar said the bank will be part of the resolution plan and will support Uday Kotak in his efforts.
The liquidity crisis in NBFCs surfaced after IL&FS, which had funded long-term infrastructure projects through short-term funds, defaulted on payment obligations and was downgraded by credit agencies.
SBI is awaiting clarifications on how much capital should be set aside for partial credit enhancements to NBFC bonds, Kumar said.
Last week, RBI allowed banks to provide partial credit enhancement to bonds issued by some NBFCs, thereby enhancing the credit rating of these bonds and enabling the NBFCs to access funds from the bond market on better terms.