SBI’s burden

Mains Paper: 3 | Economy 
Prelims level: NBFC 
Mains level: Indian Economy and issues relating to planning, mobilization of resources, growth, development

Context 

• On Tuesday, India’s largest bank, SBI, said it would purchase good quality asset portfolios from Non Banking Finance Companies (NBFCs) worth Rs 45,000 crore.
• The bank sees an opportunity to expand its loan portfolio at attractive rates and to help it meet its priority sector targets in areas such as the farm sector, SME infrastructure and the social sector.
• Last month, after reports first emerged of NBFCs being squeezed in the wake of defaults by IL&FS and the dissolution of its board, the SBI had offered to provide liquidity support while indicating that it would not cut back on lending to NBFCs.

What are the matters of concern? 

• Concerns expressed about the state-owned lender buying into assets of NBFCs.
• It is because of the experience of another state backed entity, LIC, which had invested in IDBI Bank and ONGC being weighed down after the buyout of HPCL.
• That’s why it is all the more important for the bank to go the extra mile in ensuring the quality of the portfolio it acquires from NBFCs. 

Way forward 

• There’s no denying that NBFCs have come to play a far more important role in India’s financial sector over the past few years, when many Indian banks saddled with bad loans started shrinking their balance sheets.
• Over the last few years, the NBFCs have expanded with the RBI now supervising over 11,100 such firms of which 249 are non deposit taking .
• The onus is now on the SBI to demonstrate that the portfolio purchase of NBFC loans rests on prudent commercial reasons and that the decision is not a forced one.

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General Studies Pre. Cum Mains Study Materials

UPSC Prelims Questions: 

Q.1) Consider the following about Power Finance Corporation.
1. It is a non-Banking Financial Company (NBFC).
2. It is a Navratna Central Public Sector Entreprise (CPSE) in the Financial Services Sector.
3. Its majority shares are held by the private sector.
Select the correct answer using the codes below.
a) 1 and 2 only
b) 2 only
c) 1 only
d) 1, 2 and 3
Answer:  A

UPSC Mains Questions:
Q.1) How NBFCs are playing important role to stabilize Indian Economy?