Business Daily from THE HINDU group of publications
Saturday, Jan 10, 2009
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Business Daily from THE HINDU group of publications Saturday, Jan 10, 2009 ePaper | Mobile/PDA Version | Audio | Blogs |
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NBFCs Industry & Economy - Economy Government - Policy New facility for providing liquidity to NBFCs cleared Our Bureau New Delhi, Jan. 9 Following the announcement of liquidity facility for non-banking finance companies (NBFCs) in the recent stimulus package, the Union Cabinet today approved Stressed Assets Stabilisation Fund (SASF) to function as the special purpose vehicle (SPV) that would provide liquidity support to the order of up to Rs 25,000 crore. This facility would, however, be available only for non-deposit taking systemically important NBFCs, many of whom are facing liquidity constraints. Also, such NBFCs can use the funds from this facility only for repaying existing liabilities. The SASF was originally set up to acquire the stressed assets of Industrial Development Bank of India (IDBI). With large obligations of SI-NBFCs being towards banks, industry sources noted that substantial funds from this liquidity facility are likely to eventually find their way to the banks and not for new projects or financing. In the stimulus package of January 2, the Government had said that an SPV would be designated to provide liquidity support against investment grade paper to NBFCs, potentially opening a Rs 25,000-crore window. Briefing reporters on the Cabinet decision, the Union Home Minister, Mr P. Chidambaram, said that SASF would issue government guaranteed securities that would be purchased by the Reserve Bank of India. The funds would be utilised by the SASF to acquire only investment grade commercial paper and non-convertible debentures of NBFCs. If one were to go with norms of rating agencies, a commercial paper of BBB rating and above could qualify as investment grade, although various credit rating agencies have different yardstick. Under the framework put in place for addressing liquidity constraints of SI-NBFCs, the SASF would issue government-guaranteed securities not exceeding Rs 20,000 crore with an additional Rs 5,000 crore, if needed. Mr Chidambaram also said that the Reserve Bank of India will issue guidelines for pricing and lending in consultation with the Department of Financial Services. As part of the stimulus package, the Government had announced a slew of measures to give a boost to the NBFC sector. Besides the Rs 25,000-crore liquidity facility through an SPV, the Government had also said that public sector banks would now provide a line of credit to NBFCs specifically for purchase of commercial vehicles. NBFCs dealing exclusively with infrastructure financing can access external commercial borrowing (ECBs) from multilateral or bilateral financial institutions, after RBI approval. NBFCs may get easier access to funds NBFCs expect banks to be more responsive More Stories on : NBFCs | Economy | Policy
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