Home / Industry / Banking /  SBI comes to the aid of NBFCs battered by IL&FS crisis

Mumbai: State Bank of India (SBI) on Tuesday said it will triple its target of buying standard loans from non-banking financial companies (NBFCs) to up to 45,000 crore in FY19.

The move is expected to give an additional liquidity cushion to NBFCs who will benefit by selling these loans on full-cash basis.

In a statement issued on Tuesday, India’s largest bank also said it is looking for opportunities in both priority and non-priority sectors.

A senior official at SBI said the bank typically purchases loans from NBFCs to meet the shortfall in priority sector lending. These loans, he said, are to housing, small and medium enterprise (SME) and agriculture sectors.

“We purchase these loans in cash and the deal is to buy 90% of the loan while the rest remains on the books of the NBFC," he said under condition of anonymity, adding that this year, the bank is looking to reduce the exposure below 90%.

The official added that he expects NBFCs to benefit from these deals at a time they are finding it difficult to raise money from the markets.

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

At the end of FY18, SBI’s total priority sector loan book stood at 4.66 trillion, of which 10.21% were non-performing loans, according to its FY18 annual report.

Mint reported on 8 October that the National Housing Bank (NHB) has increased the refinancing limit to 30,000 crore from the existing limit of 24,000 crore in order to address the liquidity crisis in the housing finance industry. It would increase the availability of funds for housing finance companies, the government said in a statement.

The extension came at a time the shortage of liquidity has triggered fears of defaults by housing finance companies, hammering their shares. The refinance window is aimed at providing funds to housing finance companies at cheaper interest rates.

Starting July, the NHB has disbursed 8,835 crore of the 24,000 crore refinancing window to housing finance companies. The NHB is the regulator of housing finance firms and is tasked with providing them financial assistance.

The liquidity crisis surfaced after Infrastructure Leasing & Financial Services Ltd (IL&FS), which had funded long-term infrastructure projects through short-term funds, defaulted on payment obligations and was downgraded by credit agencies over the past two months. On 17 September, rating agency Icra downgraded IL&FS’s credit rating to default, after it failed to meet repayment obligations of 12,000 crore in short-term and long-term borrowings.

RBI deputy governor Viral Acharya on Friday advised financial firms against relying on short-term sources for funding long-term projects, saying it appears to have led to a form of “maturity rat race in the financing of the financial sector". Economic affairs secretary Subhash Chandra Garg said this measure should alleviate liquidity concerns to a great extent.

Remya Nair in New Delhi contributed to this story.

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