, managing director of Bajaj Finance, one of the largest players in the NBFC sector
responds to questions on the impact of the measures announced by Finance Minister Nirmala Sitharaman last week, in a conversation with Surajeet Das Gupta. Edited excerpts:
The sector needs fresh funding more than refinance. Will the increase in NBFC refinance limit by 50 per cent help?
This measure should help the HFC sector improve their liquidity condition. However, the larger share may be garnered by good quality HFCs that are not facing liquidity issues. The NHB has recently started to seek exclusive charge on assets for refinance, compared to pari-passu charge mechanism, which is common across all lenders.
Most NBFCs and HFCs have sold their highly rated pool of assets over the past several months, following the crunch. So, the partial credit guarantee would hardly be useful. Your take?
Mortgage assets are assigned under direct assignment structures, which are not rated. Rating is done for CV pools or other asset-backed products having lower tenors under securitisation (PTCs) transactions. Hence, its benefits may be limited for HFCs.
We are awaiting greater clarity on whether the Purchasing Bank can claim the entire outstanding of the underlying borrower, or the amount of defaulted interest/principal from the government. If only the current shortfall is paid, risk remains if the borrower becomes an NPA after two years. The cost of purchasing the guarantee is also to be paid by NBFCs/HFCs, which would need to be added to the overall cost of funds.
The mini budget is definitely a sentiment booster. But is that enough to bring back demand, given that there are no tax cuts?
These measures should help in demand acceleration. However, as indicated by the government, it is likely to announce some measures for the real estate sector and may come out with a vehicle scrappage policy, which may help boost demand for commercial vehicles, cement and metal sector.
Measures such as use of Aadhaar-based KYC by NBFCs, fast-tracking government dues on procurement, expediting GST refunds of MSMEs, reducing undue interference from tax authorities, and easing the process of applying for and disbursing credit should really help. The government announcement of immediate capital infusion of Rs 70,000 crore into public sector banks would help banks to boost lending by Rs 5 trillion into the economy. From the perspective of fiscal consolidation, the announcements do not impose significant extra fiscal burden.
The government expects rollback of surcharge to only cost Rs 1,400 crore in lost revenue. Capitalisation plan for PSU banks would also help lower MCLRs and passthrough of lower interest rates as credit demand has slowed down and ample liquidity is available with banks. Linking of working capital loans for industry would still be a challenge . An exposure limit increase due to increase in tier-I capital would also help extend credit flow to the NBFC/HFC sector.
How will the bank co-origination pact with NBFCs help?
Practical aspects of such a mechanism is yet to be worked out, as there is a lot of difference between the functioning of NBFCs and banks.
Have these measures been introduced too late for any significant impact on festive demand?
The steps taken by the government are in the right direction and should help revive demand in the economy, as there is still some time for the festivals.
Availability of liquidity, low interest rates, good monsoon, deferral of increased registration fees for petrol/diesel cars, additional 15 per cent depreciation on new cars etc should help revive demand.