NaBFID can consider offering credit enhancement, CDS to projects: RBI DG
NaBFID) can consider providing partial credit enhancement (PCE) or first loss default guarantees to infrastructure companies which will help improve the credit ratings for these projects and make it attractive for long-term investors like pension and insurance funds to invest in these products, Rajeshwar Rao deputy governor, Reserve Bank of India (RBI) said.
«NaBFID could play a critical role in facilitating loans indication for large-ticket loans and play an elite role in supporting the secondary loan market association and development of credit markets as well. As NaBFID develops its internal rating models for credit appraisers, it may also be able to offer products such as credit default swaps, which would go a long way in ushering confidence in the foreign market space,» Rao who is in charge of department of regulations, enforcement and risk monitoring said.
Under a PCE a financial institution like NaBFID provides a guarantee on a portion of the bond's repayment. This guarantee enhances the credit rating on the bond and also provides comfort to investors putting money in buying the security.
In November 2018, RBI had allowed banks to provide PCE to bonds issued by systemically important non-deposit taking non-banking financial companies (NBFCs) and housing finance companies. The regulator had said the tenure of these bonds shall not be less than three years and that proceeds from them shall only be utilized to refinance existing debt.
Speaking to reporters on the sidelines of a conference organised by NaBFID
