Mumbai, Nov 16 (DIN NEWS)<\/b> The partial credit enhancement (PCE)facility by the Reserve Bank of India’s (RBI) for non-bank lenders is unlikely to have the desired impact of increasing credit flow to the troubled sector, a report said Friday.<\/p>\n
On November 2, RBI had allowed banks to provide PCE for debt raised by non-deposit-taking systematically important non-banking financial companies (NBFCs) and housing finance companies (HFCs).<\/p>\n
“The issuance volumes for NBFCs\/HFCs under the PCE framework are likely to remain muted,” domestic rating agency Icra said in the note.<\/p>\n
Credit enhancement is a tool typically aimed at improving credit worthiness of a borrower, in this case the NBFCs. The RBI move came amid a strong pitch for many, including its central board members, to increase the credit supply to the troubled sector.<\/p>\n
NBFCs and HFCs are facing a crisis of confidence following the default by IL&FS since late-August, which led to its takeover by the government last month. This in turn led to a liquidity crunch for the sector, which has a credit demand of around Rs 1 trillion to redeem their debt obligations in November.<\/p>\n
It can be noted that even in immediate reactions, analysts were doubtful about the impact which can be created through the new regulations.<\/p>\n
Icra drew parallels between the corporate sector and the NBFCs and voiced its fears of the non-bank lenders also not issuing any PCE-backed debt instruments like the corporate sector, which has not been able to raise any debt despite the same facility being around for three years.<\/p>\n
Additionally, it said the RBI guidelines on PCE state that the drawn PCE facility would become payable within a period of 30 days, which is a “restriction”.<\/p>\n
“This restriction makes the nature of PCE facility akin to a liquidity facility (providing only a liquidity cushion of 30 days) rather than a genuine long-term first loss credit enhancement facility,” it said.<\/p>\n
In the absence of any significant rating enhancement, the cost savings to the issuer may not be significant.<\/p>\n
Although PCE debt structures have the potential to help issuers reach out to a wider set of investors like those who would be unable or unwilling to invest in their stand-alone debt; “in reality”, in the absence of any significant rating enhancement, this benefit is unlikely to be achieved in a big way, the agency said.<\/p>\n\n","protected":false},"excerpt":{"rendered":"
Mumbai, Nov 16 (DIN NEWS) The partial credit enhancement (PCE)facility by the Reserve Bank of India’s (RBI) for non-bank lenders is unlikely to have the desired impact of increasing credit flow to the troubled sector, a report said Friday. On November 2, RBI had allowed banks to provide PCE for debt raised by non-deposit-taking systematically important non-banking financial companies (NBFCs) and housing finance companies (HFCs). “The issuance volumes for NBFCs\/HFCs under the PCE framework are likely to remain muted,” domestic rating agency Icra said in the note. Credit enhancement is…<\/p>\n","protected":false},"author":1,"featured_media":18965,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[6,4],"tags":[],"_links":{"self":[{"href":"https:\/\/dinnews.in\/index.php?rest_route=\/wp\/v2\/posts\/18964"}],"collection":[{"href":"https:\/\/dinnews.in\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dinnews.in\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dinnews.in\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/dinnews.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=18964"}],"version-history":[{"count":1,"href":"https:\/\/dinnews.in\/index.php?rest_route=\/wp\/v2\/posts\/18964\/revisions"}],"predecessor-version":[{"id":18966,"href":"https:\/\/dinnews.in\/index.php?rest_route=\/wp\/v2\/posts\/18964\/revisions\/18966"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/dinnews.in\/index.php?rest_route=\/wp\/v2\/media\/18965"}],"wp:attachment":[{"href":"https:\/\/dinnews.in\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=18964"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dinnews.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=18964"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dinnews.in\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=18964"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}