Banks continue to remain wary of lending to NBFCs

MUMBAI: India’s non-bank lenders continue to face hurdles in accessing funds, with banks insisting that the last-mile financiers ensure zero loss on securitisation pools, three people familiar with the matter told ET. In some cases, state-run banks are insisting NBFCs ensure 100% collection on past securitisation pools despite clear markups for expected credit losses during the purchase of these pooled loans.

This new trend by banks to cover historic pool losses may hit fresh sanctions, even as NBFC credit growth is floundering.

Banks undertake purchase of retail pools under the securitisation mode to meet their priority sector and retail lending requirements. As per central bank rules, the risk and rewards of the securitisation pool is to be borne by the buyer without any recourse of credit loss to the seller.

Banks are required to get a credit loss assessment done from a rating agency and add a markup to the total deal cost for future credit losses. But risk aversion toward non-bank lenders is changing the rules of the game.

“Most of the public sector banks expect that the seller NBFC shall ensure zero loss on the pools,” said the CEO of a leading NBFC, on the condition of anonymity. “For the past losses, they want 100% collection from retail pools, in complete contravention of RBI guidelines. The NBFCs are forced to comply as banks would otherwise block new business.”

Officials at the lending banks year, banks charged nearly 40 bps as the spread on AAA-rated NBFC paper. This rose to more than 1.5 percentage point and has remained at that level despite the regulatory and policy measures. These costs are even higher for mid-sized and small non-bank lenders that have a higher reliance on bank credit.

“The median rated mid-sized NBFCs rely for more than 80% of their debt on PSBs. This reliance is now getting abused by banks demanding loss compensation, which is clearly unethical. It is compressing our margins and systemically destroying profits of NBFCs,” a senior official from a mid-sized NBFC said.

Credit disbursals by NBFCs have continued to slide despite government measures to boost bank funding to the sector. Loan sanctions fell 34% in the September quarter, a year after the NBFC liquidity crisis that was sparked by the IL&FS defaults.

NBFC sanctions fell to Rs 1.9 lakh crore at the end of September from Rs 2.9 lakh crore during the same period last year, according to data compiled by the CRIF High Mark credit bureau.