NBFCs end on a high as big lenders look to buy larger loan portfolios

Moneycontrol News

Shares of non-banking financial companies (NBFCs) were buzzing in trade on Wednesday as investors cheered the news of big banks looking to buy some loans from such lenders.

The likes of Dewan Housing, HDFC, Ujjivan Financial, MAS Financial Services, Edelweiss, IIFL, Satin Creditcare and L&T Finance Holdings, among others rose 1-16 percent on Wednesday.


On Tuesday, State Bank of India (SBI) came out in support of non-bank lenders, stating there is still opportunity to buy up to Rs 30,000 crore more of their loans.

“The bank had initially planned for a growth of Rs 15,000 crore through portfolio purchase during the current year which is now being enhanced,” SBI said in a statement.

“As per the bank’s internal assessment, there may be an opportunity to buy additional portfolio in the range of Rs 20,000-30,000 crore,” it said.

NBFCs typically sell down a part of their loan portfolios after holding them for a particular amount of time. Banks buy these portfolios to show growth or to meet priority sector lending requirements. In most cases, it is the latter, which is to meet the Reserve Bank of India’s (RBI) rules to lend 40 percent of its loans to the priority sector.

SBI’s statement comes against the backdrop of a critical cash-crunch situation that is plaguing non-banking finance companies (NBFCs) and making it difficult for them to raise funds from the market.

Yields of debt securities issued by NBFCs have spike over the past few weeks because of fear that they may not have the cash to repay bond holders at the time of maturity.

This restricted their business growth and has also limited funding from banks, which provide refinancing for their.

Another large public sector lender — Bank of Baroda — has decided to continue lending to NBFCs and HFCs, hoping that normalcy gets restored in due course, according to CEO and Managing Director PS Jayakumar.

On October 8, the National Housing Bank said it would increase the refinance limit for housing finance companies (HFCs) from Rs 24,000 crore to Rs 30,000 crore. This, too, was intended to reduce the refinancing risk for HFCs.