NBFCs Selling Assets To State-Run Banks Will Have To Rework Structure
To attain positive asset liability management, fair value of NBFCs’ assets should exceed their liabilities as on that date.
Non-bank lenders selling pooled assets to public sector banks will have to rework their structure within three months to attain positive asset liability management.
To achieve this, fair value of non-banking financial companies’ assets should exceed their liabilities as on that date.
According to the guidelines for one-time partial guarantee to state-run lenders for purchase of pooled assets of NBFCs, promoters of entities selling their assets should infuse equity so that NBFCs’ capital adequacy ratio does not fall below the regulatory requirement.
Finance Minister Nirmala Sitharaman, in her maiden Budget speech, announced a one-time six-month partial credit guarantee to state-owned banks for first loss of up to 10 percent on high-rated pooled assets of NBFCs. The guarantee would be provided for a total amount of Rs 1 lakh crore during the current financial year.
The scheme was announced to address temporary asset liability mismatches of NBFCs and housing finance companies without having to resort to distress sale of their assets for meeting their financial obligations.
The window for the partial credit guarantee offered by the central government will open for six months, or till the time assets worth Rs 1 lakh crore are purchased by banks, whichever is earlier.
NBFCs and HFCs will be eligible for the scheme if their capital to risk-weighted assets ratio or capital adequacy ratio is not below the regulatory norm of 15 percent and 12 percent, respectively. NBFCs and HFCs should have their net NPAs not more than 6 percent as on March 31, 2019, according to the guidelines.
Assets eligible for the sale would be:
- Assets originated up to March 31, 2019, and should be standard in the books of NBFCs or HFCs at the date of sale.
- The pool of assets should have minimum rating of ‘AA’ or equivalent at fair value prior to the partial credit guarantee by Government of India.
- NBFCs or HFCs can sell maximum of up to 20 percent of their standard assets as on March 31, 2019 subject to a cap of Rs 5,000 crore at fair value.
As per the scheme, banks will purchase assets of NBFCs at fair value. Such assets will have to be rated by credit rating agencies accredited by the Reserve Bank of India.
The one-time guarantee provided by the central government will be valid for 24 months from the date of purchase. The bank purchasing the asset can invoke the guarantee if the interest or instalment of principal remains overdue for a period of more than 90 days subject to the condition that the guarantee is for first loss up to 10 percent.
The guidelines propose real-time reporting of transactions by the banks to the government, and to get the information on remaining available headroom for purchase of such pooled assets. The government will settle claims by the banks within five working days.
