According to research, the government's actions to partially guarantee the debt of public sector banks when they buy assets from NBFCs can only temporarily relieve funding strain.
In the budget, the government announced that it would give public sector banks a one-time, six-month partial credit guarantee for their first loss of up to % for the purchase of high-rated pooled assets of financially solid NBFCs totaling Rs 1 trillion during the current financial year.
According to the article, however, NBFCs will gain more from the state-owned banks' Rs 70,000 recapitalization because it will improve their ability to lend more money.
Only public sector banks' asset purchases from NBFCs will benefit from the government's partial credit guarantee program for easing funding pressure.
The government had stated in the budget that it will offer public sector banks a one-time, six-month partial credit guarantee for their initial loss of up to 10% for the purchase of high-rated pooled assets of financially solid NBFCs totaling Rs 1 trillion during the current fiscal year.
Rating agency Fitch stated in a report on Thursday that the action does not, however, resolve investors' long-term concerns about the exposure of NBFCs' too-stressed real estate.
"The guarantee covers average losses more than enough. The government will cover the issuance of up to Rs 1 trillion. This should provide them with enough liquidity to last them for roughly six months "the agency stated.
While major NBFCs still have adequate access to capital, albeit, at a rising cost, the funding stress has been most acute for wholesale financiers, smaller NBFCs, and fintech, which have struggled to get even bank funds.
The government has mentioned six months, but it's unclear whether this refers to only how long the program also the length of time that each transaction is covered, stated.
According to the agency, "a guarantee for just the first six months after a transaction would do little to entice buyers. We, therefore, anticipate that the guarantee will apply for the whole life of the assets purchased."
However, the article said that the Rs 70,000 crore recapitalization will help NBFCs more.
A prospective asset-quality assessment of wholesale non-banking lenders, which would result in increased transparency and more stringent capital requirements, might help increase investor trust in the NBFC industry.
However, if an asset-quality assessment reveals significant under-reporting of NPAs, as it did in the case of banks, it might ultimately bring matters to a head by letting investors know which firms are the most problematic.
Although no review has been confirmed, market speculation about its potential has grown as housing finance companies moved under the RBI's regulatory purview, the report noted.
In the budget, the government announced that it would give public sector banks a one-time, six-month partial credit guarantee for their first loss of up to % for the purchase of high-rated pooled assets of financially solid NBFCs totaling Rs 1 trillion during the current financial year.
According to the article, however, NBFCs will gain more from the state-owned banks' Rs 70,000 recapitalization because it will improve their ability to lend more money.
Only public sector banks' asset purchases from NBFCs will benefit from the government's partial credit guarantee program for easing funding pressure.
The government had stated in the budget that it will offer public sector banks a one-time, six-month partial credit guarantee for their initial loss of up to 10% for the purchase of high-rated pooled assets of financially solid NBFCs totaling Rs 1 trillion during the current fiscal year.
Rating agency Fitch stated in a report on Thursday that the action does not, however, resolve investors' long-term concerns about the exposure of NBFCs' too-stressed real estate.
"The guarantee covers average losses more than enough. The government will cover the issuance of up to Rs 1 trillion. This should provide them with enough liquidity to last them for roughly six months "the agency stated.
While major NBFCs still have adequate access to capital, albeit, at a rising cost, the funding stress has been most acute for wholesale financiers, smaller NBFCs, and fintech, which have struggled to get even bank funds.
The government has mentioned six months, but it's unclear whether this refers to only how long the program also the length of time that each transaction is covered, stated.
According to the agency, "a guarantee for just the first six months after a transaction would do little to entice buyers. We, therefore, anticipate that the guarantee will apply for the whole life of the assets purchased."
However, the article said that the Rs 70,000 crore recapitalization will help NBFCs more.
A prospective asset-quality assessment of wholesale non-banking lenders, which would result in increased transparency and more stringent capital requirements, might help increase investor trust in the NBFC industry.
However, if an asset-quality assessment reveals significant under-reporting of NPAs, as it did in the case of banks, it might ultimately bring matters to a head by letting investors know which firms are the most problematic.
Although no review has been confirmed, market speculation about its potential has grown as housing finance companies moved under the RBI's regulatory purview, the report noted.
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