People wait in line outside a State Bank of India (SBI) branch in Delhi (Photographer: Anindito Mukherjee/Bloomberg)

SBI To Step Up Portfolio Purchases From NBFCs Amid Strain Across Non-Banks

State Bank of India is jumping to support the country’s non-bank lenders, many of which may find it difficult to continue growing in an environment of constrained liquidity and higher rates.

The country’s largest lender, in a statement issued on Tuesday, said it will increase its planned purchase of portfolios from non-banking financial companies.

“The bank had initially planned for a growth of Rs 15,000 crore through portfolio purchase during the current year which is now being enhanced,” SBI said in a statement. “As per the bank’s internal assessment, there may be an opportunity to buy additional portfolio in the range of Rs 20,000-30,000 crore.”

NBFCs often sell down a part of their loan portfolios after holding them for a stipulated period. Banks, in turn, buy these portfolios to show growth or to meet priority sector lending requirements. In most cases, it is the latter. SBI, in its statement, said it would look at both priority sector and non-priority sectors of NBFCs.

The statement comes against the backdrop of concerns that NBFCs will find it tough to refinance their market borrowings, which could severely impair their ability to grow. The refinancing risk emerged first out of tight liquidity conditions and then a trust deficit that hit the market after defaults from Infrastructure Leasing & Financial Services Ltd.

SBI’s move will “alleviate liquidity concerns to a great extent”, Department of Economic Affairs Secretary Subhash Garg tweeted.

Also read: Indiabulls Housing Hikes Lending Rates

It is a win-win situation, Dinesh Khara, managing director of State Bank of India told BloombergQuint. “This is an opportunity for us to meet the priority sector target and also to get a quality book. At the same time, our credit deposit ratio is around 66 percent, so there is adequate room for us to ramp up our credit.”

On Monday, the National Housing Bank said it would increase the refinance limit for housing finance companies from Rs 24,000 crore to Rs 30,000 crore. This, too, was intended to reduce the refinancing risk for housing finance firms.

Unlike banks who hold government securities and can borrow from the Reserve Bank of India against a portion of those securities to tide over liquidity troubles, NBFCs do not have that option. As such, easing the flow of funds for NBFCs is tougher for the regulator to do directly. In a scenario such as the present one, increasing the flow of funding via banks is one option to ease funding pressures faced by non-banks.

CLSA’s Take

The NBFCs have outperformed bank growth but liquidity will shift the pendulum, according to brokerage CLSA. It expects an elevated level of securitisation activity from the NBFCs.

While NBFCs/HFCs are eager to sell, it will be a buyers’ market.

CLSA said NBFCs with larger retail books and a track record of securitisation relationships will find better demand. Those with better capitalisation, higher-credit ratings and balanced ALMs have lesser urgency to sell and hence have better bargaining power relative those with larger wholesale books and capital-market related loans.

“We remain cautious on non-bank lenders and prefer HDFC and Indiabulls Housing Finance in this space,” CLSA said in a note.