As per the reports, non-bank lenders want the government to revise the terms of Rs. 75,000 crore package to help the industry, saying that the sovereign guarantee available for loans and bond sales should be for a longer period of time. The lenders want a long-term window of at least three years to access credit as they prepare for expansion of new loan post the lockdown.
Most of them are set to resume new lending June onwards. The Government should reconsider the modus operandi of the stimulus to make funds available to NBFCs for a long duration, for instance three years. The relief package provided by the Government will help NBFCs in discharging short-term liabilities. The lenders are unhappy because the government has limited the scope of both packages by saying that the Rs. 30,000 crore package will only be applicable for short-term investment grade papers of up to 3 months.
The government should consider making long funds available with NBFCs to enable them to start fresh lending to stimulate the economy. This is unlikely to facilitate their business, even if they start preparing for new lending after the lockdown gets over. The Rs. 45,000 Crore PCGC scheme covers only debt from nine to 18 months, which according to bankers does not solves the problem.
For instance, housing finance companies issues paper for three years or more. This will limit the ability of banks to buy because there is a little supply in the market for this time frame. These revised guidelines may not immediately improve liquidity profile of the NBFCs as investors may be cautious of certain asset classes given the majority of the retail loans are under moratorium and the trend in collections after the moratorium is not clear. The 20% government guarantee also could be inadequate in the post-Covid environment.
NBFCs offer long-term money of 3-5 years to MSMEs for expanding their business and working capital needs. In order to maintain a healthy asset-liability matching, NBFCs also borrow for average tenures of 3-5 years. NBFC liquidity should be atleast for a year, just a refinancing window allowing secondary investment is likely to benefit existing investors of NBFC bonds with government guarantee and provides no benefit to the NBFCs or the economy. The first loss guarantee of 20% under PCG scheme must be at a portfolio level & not at issuer level to help regain confidence of bank.
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