Banks in big loss or under PCA to be barred from buying NBFC assets
New Delhi: State-run lenders currently under the RBI’s Prompt Corrective Action (PCA) framework on account of bad loans and heavily loss making banks may not be allowed to buy the pooled retail assets of non-banking finance companies (NBFCs) under the scheme announced in the Budget, official sources said, which may leave space for only SBI, Canara Bank, Bank of India, Bank of Baroda to make such purchases.
In the Budget 2019-20, the Centre has allowed a one-time, partial credit guarantee of six months to public sector banks (PSBs) on their first loss of up to 10 per cent for purchase of high-rated pooled NBFC assets of Rs 1 lakh crore.
This is likely to provide the better-run NBFCs access to liquidity. The partial credit guarantee from the government would help NBFCs raise funds from PSBs, providing them urgently needed funding support .
They PSBs will be allowed to buy only ‘AAA’ rated retail assets and those a notch below, the sources said. They, however, have their own non-performing assets (NPAs or bad loans) issues and have just started to slowly come out of their bad loan situation but are still not out of the woods.
While the eligibility norms for PSBs to buy such assets are still to be issued by the Reserve Bank of India (RBI), the Finance Ministry and RBI will ensure that banks currently under lending restrictions under the PCA, or non-PCA banks incurring huge losses and still have an asset-liablity mismatch, will not buy the NBFC retail assets, according to informed sources here.
In a move to help both the NBFCs and PSBs, the RBI had also announced a scheme allowing banks to borrow from the central bank by pledging their excess government bond holdings to fund the purchase of NBFC assets, which can release liquidity of up to Rs 1.34 lakh crore.
Bank of Baroda reported narrowing its losses down to Rs 991.37 crore in the January-March quarter from Rs 3,102.34 crore in the corresponding quarter last year. Punjab National Bank posted a loss of Rs 4,750 crore for the last quarter of the fiscal ending March 2019.
The State Bank of India (SBI) posted a net profit of Rs 838 crore in the March quarter against a loss of Rs 7,718 crore in the same period a year earlier. While Central Bank of India’s fourth quarter loss widened to Rs 2,477 crore on high provisioning, the Canara Bank loss in the same quarter narrowed to Rs 551 crore on lower bad loans.
Bank of India returned in the black after two quarters by posting a profit of Rs 252 crore for the quarter ended March 31, against a loss of Rs 3,969 crore during the same period last year.
The Modi government recapitalised state-run lenders with Rs 1.6 lakh crore in 2018-19, the highest ever so far. The move helped five banks come out of the PCA framework.
In her maiden Union Budget presented last week, Finance Minister Nirmala Sitharaman announced a Rs 70,000 crore capital infusion into PSBs in an effort to boost credit. Only five of these — United Bank of India, UCO Bank, Central Bank of India, Indian Overseas Bank and Dena Bank — now remain under the PCA framework.
A year after a series of defaults by Infrastructure Leasing and Financial Services (IL&FS) forced the government to intervene, the problems of India’s NBFCs are entering a new phase, which poses a new challenge for the RBI.
India’s financial regulator in its latest Financial Stability Report has spelt out its concerns about the implications of the country’s spreading shadow banking crisis, saying any failure among the largest of the NBFCs could cause losses comparable to a collapse among commercial banks.
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