SPV to address temporary liquidity concerns: RBI

Finance companies are keeping their fingers crossed regarding the structure of the proposed special purpose vehicle (SPV) for addressing the temporary liquidity constraints of systemically important non-deposit taking non-banking financial companies (NBFCs-ND-SI). NBFCs are sceptical about the time and the usefulness of the window, whenever it takes shape, for two reasons. One, most of the funds are available only for short-term and are aimed at correcting the asset-liability mismatch and not for business expansion. The second reason is that though the proposed SPV funds would be available against rated papers, there is no assurance on the extent of finance against a particular paper. For instance, there is no clarity regarding the amount of money that would be available against investment grade papers worth Rs 1,000 crore. “We need long-term funds to meet our business commitments. Most of the funds are available are for three to six months, so the regulator must ensure that we get loans for three to five years,”said an NBFC chief. According to industry sources, the Finance Industry Development Council (FIDC) has requested the Reserve Bank of India (RBI) to make sure that the SPV will ensure funding for up to five years, particularly for the asset-financing NBFCs. The proposed SPV would issue government guaranteed securities to RBI. In turn, the SPV will use the funds to acquire only investment grade commercial papers and non-convertible debentures of NBFCs. Support from the central bank would be limited to Rs 20,000 crore, with an option to raise it by Rs 5,000 crore more. “During its appraisal, the SPV will ensure that NBFCs use the money only for addressing liquidity constraints and not for business expansion. The facility will be available for a limited period to address current liquidity concerns of NBFCs,” RBI said. The regulator has taken a series of measures, beginning last October, including a special liquidity adjustment facility (LAF) to on-lend to mutual funds and finance companies. However, NBFCs have been complaining that the banks are reluctant to lend to the sector, citing higher risk and were charging higher rates.