4 stocks that will benefit most from changes in partial credit guarantee scheme

The cabinet on December 11 extended the partial credit guarantee scheme for public sector banks (PSBs) to purchase high-rated pooled assets from non-banking financial companies (NBFCs) and housing finance companies (HFCs).

The state-owned banks can now purchase high-rated pooled assets from financially sound NBFCs and HFCs, with the amount of overall guarantee provided by the government till the first loss of up to 10 percent of fair value of assets being purchased by banks or Rs 10,000 crore, whichever is lower, said a report.

However, brokerage houses are not convinced. Credit Suisse is of the view that the wholesale debt market differentiation among NBFCs hasn’t eased.

Credit Suisse continues to prefer retail-focused NBFCs such as HDFC Ltd, M&M Finance, Chola Finance, and LIC Housing Finance.

The scheme was announced to address temporary liquidity and cash-flow mismatch issues faced by otherwise solvent NBFCs and HFCs without them having to resort to distress sale of assets for meeting their commitments.

The scheme will cover non-banking lenders that may have slipped into the SMA-0 category during the one year period prior to August 1, 2018, and have asset pools rated "BBB+" or higher.

SMA-0 accounts are the special mention accounts (SMA) against which the principal or interest or any other amount wholly or partially is overdue between 1-30 days.

“Govt extending partial credit guarantee scheme for BBB+ rated asset pools is positive as it broadens the scope of the scheme. But, we doubt PSBs’ appetite for buying lower-rated asset pools,” Jefferies said in a note.

Morgan Stanley is of the view that the credit guarantee scheme for NBFCs is relaxed, but is unlikely to resolve the credit crunch facing NBFCs.

"The window for one-time partial credit guarantee offered by the government will remain open till 30th June 2020 or till such date by which Rs 1,00,000 crore assets get purchased by the banks, whichever is earlier," said a PTI report.

The Finance Minister Power will have the power to extend the scheme by up to three months, it said.

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