Rating agency Fitch in its latest report has said that the government measures to provide partial credit guarantee to public sector bank on their asset purchases from non-banking financial companies (NBFCs) can ease funding pressure only for the short-term. The report mentioned that, in the budget, the government had said for purchase of high-rated pooled assets of financially-sound NBFCs, amounting to Rs 1 trillion during the current financial year, it will provide a one-time six months' partial credit guarantee to public sector banks for their first loss of up to 10 percent. Though, it said the step does not address investors' long- term concerns about the exposure of NBFCs' to stressed real estate.
Besides, it highlighted that the guarantee is more than enough to cover typical losses. The government will cover up to Rs 1 trillion of issuance. The agency estimated that this will cover their liquidity needs for about six months. The provision refers only to financially-sound NBFCs, which suggests that weaker entities in need of funds may still have to fend for themselves.
However, the report said NBFCs will benefit more from the Rs 70,000 crore recapitalisation of state-owned banks, which will increase their capacity to lend more. Investor confidence in the NBFC sector could also be boosted by a potential asset-quality review of wholesale non- banking lenders, leading to greater transparency and more robust capital requirements.