Small Finance Banks (SFB) will be major suppliers of priority sector lending certificates to help commercial banks meet their shortfalls and will constitute up to 40 per cent of the PSLC market by 2019-20, rating agency India Ratings and Research said on Tuesday.
“SFBs are likely to be the major suppliers of PSLCs and this will increase their returns on managed assets by 0.3 per cent to 0.6 per cent,” Ind-Ra said in a note.
Further, by financial year 2019-20, the SFBs – the first of the ten banks started functioning last month – will supply between Rs 9,000 crore to Rs 19,000 crore in loans which can be bought by the banks, it said.
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Non-banking finance companies, which currently sell securitised portfolios to banks, can be impacted by lowering of spreads by an effectively priced PSLC market, it added.
The agency expects the PSLCs to be priced between 1 per cent to 3 per cent annually, of amount of the certificates issued, depending on the PSL sub-segment deficit of the buyer.
The loans of Rs 9,000 crore to Rs 19,000 crore supplied to the PSLCs will constitute between 11-23 per cent of the SFBs’ assets under management estimated in 2019-20, it said.
As against regulatory requirement to have 75 per cent of their assets in the PSL segment, India Ratings said as of the existing entities loan portfolios in 2014-15 — most of them are microfinance lenders — over 90 per cent qualify as PSL.
The scheduled commercial banks, which meet their overall PSL targets but fall short of sub-targets for specialised segments like direct agriculture, will be the buyers of PSLCs, it said.
The agency said it expects the total PSL shortfall to touch Rs 3.1 trillion in 2019-20 from Rs 1.9 trillion in 2014-15.
As the PSLC grow, it said the share of the Rural Infrastructure Development Fund (RIDF) in the deployment of the shortfall will moderate to 53 per cent in 2019-20 from 68 per cent in 2014-15, while the securitisation/inter-bank participation certificates and business correspondent arrangements will remain steady at 32 per cent.
The urban co-operative banks can also be important PSLC suppliers of up to Rs 300 billion, given the PSL norms for urban co-operative banks and that there is no transfer of credit risk to PSLC buyers, it said.
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