MUMBAI: Reserve Bank of India (RBI) had, on November 2, allowed a Partial Credit Enhancement (PCE) for debt raised by non-banking finance companies (NBFC) and housing finance companies (HFC) as part of its measures to ease liquidity for the industry, which has been stressed for short-term funds since mid-September. Ratings firm ICRA, in a report released on Friday, said that the PCE framework would have limited utility and may not drive significant issuance volumes.
The PCE framework will likely help the NBFCs and HFCs to better their credit ratings. Earlier, the State Bank of India had said that it would follow whatever prudential norms it follows in providing credit facilities while guaranteeing NBFC credit under PCE, but it needed clarification on the capital reserve requirements needed.
According to ICRA, the 30-day time period for PCE facility is akin to liquidity facility, rather than a genuine long-term first loss credit enhancement facility. If there is no significant rating enhancement, the cost savings to the issuer also may not be significant, it said. As is the experience in case of corporate debt, issuance volumes for NBFCs and HFCs under the PCE framework is likely to remain muted, ICRA added.