RBI’s liquidity scheme will prevent distressed NBFCs from defaulting: Capri Global Capital

This window itself will not help as you are getting money only for three months while HFCs require long-term money, says Rajesh Sharma, MD.

What is your view on the recent guidelines that have been issued by the Reserve Bank? Do you think that the creation of SPV is going to help in providing the necessary support to the sector?
It is a part of the larger Atmanirbhar plan where the government as well as the RBI has announced schemes including LTRO1, LTRO2 and the special liquidity scheme. So this special liquidity will cater to the needs of few NBFCs and housing finance companies and some microfinance companies where there is a slight mismatch and short-term pressure. Basically it is done so that there is no risk in the financial sector and no default happens by some of the companies who are in the middle of raising money. They are yet to materialise their sanctions and limits while their repayments are falling due. So they can avail this window of three months and utilise that money to extinguish their existing liabilities of the repayment.

Basically microfinance or housing finance or NBFCs will get another three months to mobilise the funds. These repayment of the securities issued by special liquidity scheme by the SBI subsidiary setup trust will be only for a period of three months. So it is a direct way to extend the repayment obligation by three months and within that period they can look for long-term funding from banks and institutions. So this is a scheme which will help whosoever is in distress to get more time and not default.

Do you think this move will address the issue of the higher funding cost for the sector? Do you think that borrowing costs could come down as funding pressure will ease?
This is making sure that there is no mismatch and giving only a three months extension. I think this window itself will not help in reducing the cost because you are getting money only for three months while housing finance companies require long-term money. The NBFC also looks for medium term money and microfinance companies look for maybe four-five years. But this money is about three months. The whole purpose of the scheme is not cost reduction but the whole purpose is that somebody who is having a mismatch and requires immediate money can get it and will not default. They will take the money from this scheme and repay to their existing lenders and they get another three months to repay this liability. Whatever they borrow under special liquidity schemes at the moment has also been given a three months window. So this money is available to extend your repayment by three months by not falling in any default situation.