State Bank of India (SBI), the country’s largest lender, is increasing its holding of non-banking financial company portfolios through planned purchases to support non-banking lenders by easing current liquidity constraints.
In a statement issued on Tuesday, SBI said it will increase its planned purchase of portfolios from non-banking financial companies three-fold to provide liquidity to NBFCs. SBI would buy such portfolios up to a total of Rs45,000 crore.
“The bank had initially planned for a growth of Rs15,000 crore through portfolio purchase during the current year, which is now being enhanced,” SBI said in a statement. “As per the bank’s internal assessment, there may be an opportunity to buy additional portfolio in the range of Rs20,000-30,000 crore.”
NBFCs are forced to sell part of their portfolios after holding them for a stipulated period for sake of liquidity. These, in turn, are bought by banks to boost their priority sector portfolios and show credit growth.
SBI, however, said it would look at both priority sector and non-priority sectors of NBFCs exposure.
The move is aimed at boosting overall liquidity, particularly in the backdrop of concerns that NBFCs will find it tough to refinance their market borrowings.
The refinancing risk emerged first out of tight liquidity conditions and then a trust deficit that hit the market after defaults from Infrastructure Leasing & Financial Services Ltd.
SBI’s move will “alleviate liquidity concerns to a great extent”, Department of Economic Affairs Secretary Subhash Garg tweeted.
On Monday, the National Housing Bank said it would increase the refinance limit for housing finance companies from Rs24,000 crore to Rs30,000 crore. This, too, was intended to reduce the refinancing risk for housing finance firms.
Unlike banks that hold government securities and can borrow from the Reserve Bank of India against a portion of those securities to tide over liquidity troubles, NBFCs have no such recourse and RBI uses state-run banks to channel fund flows to these important financial institutions.