Purchases of loan pools by banks help inject liquidity into non-bank lenders
Mutual funds have raised objections to the large buyout by Bank of Baroda worth ₹3,000 crore
Mumbai: Even as mutual funds object to securitisation deals between banks and Dewan Housing Finance Corp. Ltd (DHFL), lenders to the company said they have followed norms set by the Reserve Bank of India (RBI) for such transactions.
A senior public sector banker, part of the lenders’ consortium, on Monday said the deals were based on prescribed guidelines of the central bank and were done in other non-banking financial companies (NBFCs) as well. He said mutual funds have raised objections to the large buyout by Bank of Baroda worth ₹3,000 crore, among other such deals.
Mint reported on 30 June that Bank of Baroda (BoB) has entered into a transaction with DHFL to acquire loans worth ₹3,000 crore against its exposure to the non-bank lender. BoB acquired the pool of loans made by DHFL and adjusted it against its loans to the non-bank lender.
“These are initial hiccups and we hope to sort these out in the next meeting. The securitisation of retail assets was aimed at injecting liquidity into DHFL when it was facing severe liquidity stress," he said.
The Economic Times reported on Monday that mutual funds have objected to securitisation deals undertaken by DHFL since the company’s repayment problems began. Most mutual funds have, so far, abstained from joining the inter-creditor agreement (ICA) for the stressed mortgage lender. As on 6 July, the company’s total debt stood at ₹83,873 crore, of which ₹38,342 crore was owed to banks.
Purchases of loan pools by banks help inject liquidity into non-bank lenders. Banks often buy loans from shadow lenders comprising securitised retail loans to meet the shortfall in priority sector lending.
The banker cited above added that the government has also allowed banks to buy pool of assets with a minimum rating of 'AA' or equivalent at fair value prior under the partial credit guarantee scheme.
Meanwhile, acting on a motion filed by Reliance Nippon Life Asset Management Co. (now Nippon India Asset Management Co.), the Bombay high court on 10 October extended its stay on further payments by DHFL to its creditors except for payments made parri passu (in equal proportion) to all secured creditors. Following this, rating agency Icra on 15 October downgraded six securitized loan pools of DHFL.
Icra said the ongoing legal proceedings against DHFL might impact its ability to transfer the pool collections into the respective collection and payout (C&P) accounts of the rated transactions in a timely manner.
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