Only a dozen-odd of the 52 micro lenders have investment grade ratings and are thus eligible to issue debt instruments that can be picked by banks using the Rs 50,000-crore special liquidity tap that the Reserve Bank of India has opened up over the weekend.
Last April 17, the central bank announced a Rs 50,000-crore focused liquidity injection through what it calls a new model of its targeted long-term repo operations (TLTRO 2.0) aimed solely at small and medium non-banking financiers, housing finance companies and micro-lenders.
"Our own survey shows that only 12 members, one with 'AA' and 11 with 'A', have investment grade ratings, and, therefore, they are the ones who are most likely to get the money under TLTRO 2.0," Micro Finance Institutions Network (MFIN) Chief Executive Harsh Shrivastava told PTI. MFIN is a self-regulatory organisation (SRO) of NBFC-MFIs.
The rest of the players have either BBB/BB or lower ratings, he added.
Shrivastava, however, welcomed the TLTRO 2.0 saying it can help large micro-lenders with investment grade ratings to get cheaper funds.
Of the 52 MFIs, 21 are large with a portfolio of over Rs 500 crore, 19 are mid-sized with a loan portfolio of Rs 100-500 crore and 12 are small ones with under Rs 100 crore loan book, he said.
Also Read
Typically, debt instruments with AAA rating carry the lowest credit risk, thus have the highest degree of safety regarding servicing of financial obligations.
A 'BBB-' is the lowest investment grade rating on a debt instrument that can attract investments.
And, any rating below this is riskier debt and thus attracts higher coupons, given the inherent risks the issuer faces in meeting debt obligations.
The RBI will conduct the first auction for the three-year TLTRO 2.0 for Rs 25,000 crore on April 23 at 4.40 per cent.
The funds availed under TLTRO 2.0 will have to be deployed in investment grade bonds, commercial papers and non-convertible debentures (NCDs) of non-banking financial companies (NBFCs) and at least 50 per cent of the fund should go to small and mid-sized NBFCs and micro-finance institutions (MFIs).
Of the 50 per cent, 10 per cent or Rs 5,000 crore will have to be invested in debt issued by MFIs, 15 per cent into debt issued by NBFCs with an asset size of Rs 500 crore and below and 25 per cent in securities issued by NBFCs with assets size between Rs 500 crore and Rs 5,000 crore.
The deployment of funds availed under TLTRO 2.0 in the primary market cannot exceed 50 per cent of the amount availed of, the RBI had said last Friday announcing the liquidity window.
According to India Ratings Director Prakash Agarwal, "Small and medium NBFCs have limited presence in the capital market and thus investments through secondary market transactions are not feasible for them."
Disclaimer: No Business Standard Journalist was involved in creation of this content