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Finance Ministry wants RBI to take over stressed assets of NBFCs


Date: 29-11-2019
Subject: Finance Ministry wants RBI to take over stressed assets of NBFCs
The Modi government and the central bank are together working at relieving the stress of the financial and the real estate sector. ET now learns that talks are on at a high-level on whether a mini version of the troubled asset relief program that the US government undertook in 2008 during the financial crisis could be done to alleviate the stress of India’s NBFC sector.

Nirmala Sitharaman backed Finance ministry along with RBI are discussing a new scheme to unburden stressed assets from top 25 NBFCs. Sources indicate that the creation of new RBI backed SPV or Special Purpose Vehicle could be mulled that will buy stressed assets from financial firms, thereby removing the stress in the NBFCs. NBFC shares also moved higher after reports of Finance Ministry wanting RBI to take over stressed assets NBFCs.

“Talks are on and various rounds of discussions have happened with the central bank on a mini- TARP like programme. RBI could be the buyer of last resort”, said a source in the know of the development.

TARP was a programme to purchase toxic assets and equity from financial institutions to strengthen its financial sector done by US Federal Reserve in 2008 during the peak of the Lehman Crisis.

“RBI is monitoring the top 50 NBFCs closely and we are assessing if more measures are needed besides the partial credit guarantee scheme and the credit lines via National Housing Bank. If there’s in more pain, then we will have to look at alternatives. The NBFCs have indicated that fund crunch persists and the partial credit scheme has not taken off despite the governments push”, added the source.

The concern, however, is that the central bank has its reservations. The RBI has opposed the idea of opening its balance sheet to buy toxic assets of the non-banking finance companies, the official said, adding discussions were ongoing

Besides relief for NBFCs, a one time forebearance from RBI is being discussed for realty NPAs for a period of one year. “Niti Aayog has highlighted that unless financial sector and real estate sector are revived, it will be hard to revive the economy”, added another source who is privy to both the discussions.

The central government has taken various steps to extend support to NBFCs. Public sector banks have been sanctioned to purchase ‘21,580 crores of pooled assets as on October 16. Moreover, the National Housing Bank has also extended 30,000 cr worth of credit lines to NBFCs.

Experts also are not in favour of using the RBIs balance sheet to fund NBFCs. “The government has already used RBIs balance sheet to fund its budgetary requirements. Further using the RBI’s books to fund stressed NBFCs will have its own ramification. How will you do the fur diligence, someone will have to take the stress of the financial sector. Either the banks take it or the government takes it but the RBI taking it would be the worst”, said Ashvin Parekh of Ashvin Parekh Advisory.

Source: economictimes.indiatimes.com

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