NEW DELHI: The finance ministry is mulling a proposal, which could see the setting up of a fund to buy out stressed assets held by non-banking financial companies (NBFCs) in order to inject fresh liquidity into the system and help bail out the sector.
However, the central bank, according to sources is not yet on the same page on the proposal. The original plan was to replicate something like the US Troubled Asset Relief program, which was funded by the US treasury, however, the Reserve Bank feels the money it has for debt relief is meant to bail out scheduled banks in case they fall into bad days.
NBFCs by definition are not banks but merely finance firms, which are not allowed to take demand deposits. They may like other corporations, with permission to sell bonds, but not act as a bank. “If we need to help out NBFCs, this can need not be done by floating a TARP like fund.
It can also be done with another stressed asset fund into which various organisations pay in money, something like the fund created for real estate sector where the government and several financial institutions and sovereign wealth funds are putting in money,” said officials.
Earlier this month, the government had approved a Rs 25,000 crore fund to help complete more than 1,600 stalled housing projects, including ones that had been declared non-performing assets (NPAs) or admitted for insolvency proceedings in a bid to boost growth.
The problem with such a stressed asset fund is that many of the toxic assets held by NBFCs may not have significant underlying assets which can be monetized or built upon to get returns on. “In some ways, it could be a mix of toxic assets some of which can yield almost nothing, while some could yield something,” officials further said.
Approval of Rs 25,000 crore fund
Earlier this month, the government had approved a Rs 25,000 crore fund to help complete more than 1,600 stalled housing projects, including ones that had been declared NPAs or admitted for insolvency proceedings in a bid to boost growth