Government’s NBFC Support Scheme Helped Only A Few Non-Bank Lenders

In May this year, the government had introduced a Rs 30,000-crore scheme via which non-banking financial companies could raise short-term funds with the backing of a government guarantee. Under the scheme, the government will provide a guarantee to debt securities identified by SBI Capital Markets Ltd., appointed to implement the scheme via a special purpose vehicle. The Reserve Bank of India, in turn, will purchase securities issued by the SPV in order to fund the scheme.

According to finance ministry data, at the end of September 2020, only 39 proposals worth Rs 11,120 crore were received from lenders, of which Rs 7,277 crore was disbursed. The remaining Rs 3,707 crore in proposals lapsed as the scheme closed at the end of September.

Beneficiaries Under The Scheme

Three debt bankers aware of the scheme’s investments told BloombergQuint that apart from a few small NBFCs, it was mostly well-established AA-rated NBFCs that raised funds through the scheme.

The list includes entities involved in housing finance, asset financing, real estate financing, corporate lending, education and SME lending. BloombergQuint could not ascertain the full list of borrowers from the scheme.

The scheme has ultimately ended up creating liquidity only for a handful of large NBFCs, said Raman Agarwal, area chair for NBFCs at Council for International Economic Understanding. “The larger universe of NBFCs continued to face a crunch in this period. Due to the short tenure and the mode of funding, which has always been bonds, CPs or NCDs, small and medium NBFCs were left out since they usually borrow through term loans and not bonds,” he said.

Most small and medium-sized NBFCs, Agarwal said, did not require liquidity for repayment of liabilities but needed funds for on-lending. The scheme, which only provided 90-day funds, did not help them address the issue of funding for lending purposes.

A three-month funding scheme was a non-starter as NBFC and HFCs were looking for longer tenor funding as the Covid-19 uncertainty had not receded, said Jinay Gala, senior analyst at India Ratings and Research. Sourcing such short-term money would also show desperation sending mixed signals about the lender’s health, Gala said.

“Nobody would want an additional ALM (asset-liability management) risk by adding debt to repay existing debt. So the 90-day tenure was the biggest hurdle for small NBFCs to avail this liquidity. Larger NBFCs may have availed the scheme as their liquidity has eased, which meant that repaying after 90-days would not be challenging for them, ” Gala said.

Funding Costs

For those who managed to tap into the facility, the cost of funds was about 30-50 basis points lower than prevailing market rates, a debt market banker said on the condition of anonymity.

While ‘AA’ and ‘A’ rated entities raised funds from the scheme at yields between 7.15% and 9% on their debt papers, ‘BBB’ rated and below entities raised funds at yields between 9% and 11%, according to data from the National Securities Depository Ltd. The NSDL data is available for non-convertible debentures but not for commercial paper.

Since the RBI provided funding at the repo rate of 4%, the trust earned a spread of 315-700 basis points over and above the securities it has issued to the RBI for funding, debt market bankers who BloombergQuint spoke to said.

SBI Capital Markets declined to comment. Responses to queries from the RBI sent on Wednesday are awaited.