FREE

Event update: Financials - SBI's liquidity window for NBFCs (HFCs) especially Dewan

SBI has announced that they have increased the limit for portfolio buyouts from NBFCs from Rs150bn to Rs450bn, an increase of Rs300bn.  

Key highlights

• The portfolio buyouts will be for the priority sector.
• It will mainly be housing portfolios in the priority sector.
• SBI will follow stringent quality norms while deciding buyouts.
• Will focus on the larger HFCs not the very small ones. Among the larger HFCS, we believe Dewan and India Bulls are keen to sell portfolios.
• Portfolio buyouts are part of the overall sector cap put by the bank’s Board for lending to NBFCs.

Our take

• This is an indirect way of infusing liquidity into HFCs like Dewan that are facing a severe liquidity crunch as mutual funds and other lenders are nervous about lending to them post IL&FS.
• This will come as a big support to HFCs especially Dewan Housing.
• An ET report says that Dewan has already sold Rs50-70bn of small ticket housing loans to SBI. The loan pricing may have been 50bps higher than what SBI offers to its own home loan customers. SBI’s feedback is that they do IBPCs all the time and buyout deals are part of the ongoing business.
• We believe this will add to SBI’s asset growth and NIMs. The additional Rs300bn accounts for 1.6% of SBI’s current loan portfolio.
• While this deal is positive for SBI’s earnings on the margin, we are  not in favour of state owned banks acting as lenders of last resort. One reason why state banks trade at a huge discount is because they are asked to step in when there’s a crisis. The merger of Dena with BoB and the recent increase in portfolio buyout size by SBI are examples.
• As for Dewan and others whose portfolios SBI will buy out, it is a big short term relief. However, they selling out  a proportion of their best quality portfolio to SBI is not positive  for long term earnings and valuations as the quality of what remains behind is not as robust.

·       Some other large, non-HFC, NBFCs are complaining that large, non PCA state banks are not being able to give them fresh sanctions easily because these banks are close to their sector exposure limit for NBFCs.