oppn parties SBI Moves To Ease Liquidity Crunch In Financial Markets

News Snippets

  • Crude prices fall sharply as Saudi Arabia assures normal production in a few weeks. Prices fall by 5.4% to $65.30 per barrel
  • Sensex tumbles 700 points over fears that rising crude prices will deal a body blow to the tottering Indian economy
  • As Rajeev Kumar fails to appear before the CBI despite several notices, the agency forms a special team to locate and apprehend him
  • S Jaishankar says Pakistan is not a normal neighbour and its behaviour is a "set of aberrations"
  • External Affairs Minister S Jaishankar says PoK in Indian territory and the country hopes to have physical jurisdiction over it one day
  • Barasat Sessions court near Kolkata rejects Rajeev Kumar anticipatory bail application citing lack of jurisdiction as the reason
  • PM Modi celebrates his birthday with Narmada aarti and later has lunch with his mother.
  • All 6 Bahujan Samaj Party MLAs merge with the Congress in Rajasthan
  • Bengal CM Mamata Banerjee to meet PM Modi on Wednesday, state issues on the agenda
  • Pakistan to open Kartarpur corridor on Nov 9
  • Rajeev Kumar, ex-police commissioner of Kolkata and wanted for questioning in the Sarada scam does not appear before the CBI despite the state administration requesting him to do so
  • Supreme Court asks the Centre to restore normalcy in J&K but keeping national interest in mind
  • As Trump accepts the invitation to attend a programme in Houston with PM Modi, India rushes to settle trade issues with US
  • After drone attack on Aramco's Suadi Arabia facility, oil prices jump 19% in intra-day trading causing worries for India
  • Imran Khan raises nuclear war bogey again, says if Pakistan loses a conventional war, it might fight till the end with its nuclear arsenal
Sunni Wakf Board and Nirvani Akhara write to the Supreme Court for a negotiated settlement to the Ayodhya dispute
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SBI Moves To Ease Liquidity Crunch In Financial Markets

By Ashwini Agarwal

The news that India’s largest bank, the SBI, was buying more than Rs 45000cr of “good quality” asset portfolio from NBFCs was treated by many skeptics as another instance of the government forcing a bank to bailout the financial sector in the wake the problems in IL&FS. But they forget one thing – the NBFCs are facing a huge liquidity crunch and SBI will get their good quality (obviously the bank will not pick up stressed assets) portfolio at a decent price. In this way, both will gain. The NBFCs will be able to meet their other commitments that can only be met by cash. The SBI will get a portfolio that will pay it good returns and will up its numbers on priority sector lending. This is a win-win situation for both.

The Economic Times has raised the question that if the loans are good to buy and hold, why did the banks not issue these loans in the first place? To answer this, the reach of NBFCs must be taken into account. NBFCs have spread to remote corners of the country. They seek – almost ferret out – borrowers as they are hungry for business. They are not like banks - waiting for people to apply. They can open up to 1000 branches without seeking RBI approval. They send their sales team to potential borrowers and win them over as clients. Further, with the RBI now approving new rules for co-origination of loans where both banks and NBFCs can jointly build a portfolio to lend and share the risks, banks can use their reach to their advantage. But ET has sensibly advised that banks should not go only after big borrowers and also lend to good small ones.

The only thing the SBI must keep in mind is the selection of the portfolio. In the past, LIC had burnt its fingers while buying after investing in IDBI Bank and ONGC after the HPCL buyout. If it manages to get a really good quality portfolio that improves its numbers in priority sector lending while giving it a good return without unnecessary risks, then it would kill two birds with one stone – get a good deal for itself and solve the liquidity crunch in the financial markets.