The Union Ministry of Finance has issued the scheme to implement the Budget announcement to provide a one-time partial credit guarantee worth Rs 1-lakh crore to public sector banks for the purchase of pooled assets of financially sound NBFCs and HFCs. The ministry said this would provide much-needed liquidity to the NBFC sector and, in turn, enable them to continue to play their role in meeting the financing requirements of the productive sectors of economy, including MSME, retail and housing.
The one-time facility, which will be open for six months or till these NBFC/HFC assets are purchased by banks, will help address temporary asset liability mismatches of otherwise solvent NBFCs/HFCs without having to resort to distress sale of their assets for meeting their commitments. The NBFC sector has come under stress following a series of defaults by the group companies of IL&FS in September last year.
Govt. has issued the Scheme to implement the announcement in the Budget Speech for 2019-20 to provide a one-time partial credit guarantee to public sector banks for purchase of pooled assets of financially sound NBFCs.@nsitharamanoffc@nsitharaman@Anurag_Office@ianuragthakurpic.twitter.com/EDVcJzBei2— Ministry of Finance (@FinMinIndia) August 13, 2019
To help the sector come out of the stress, Finance Minister Nirmala Sitharaman in the Budget had announced support for fundamentally sound NBFCs in getting continued funding from banks. "For purchase of high-rated pooled assets of financially sound NBFCs, amounting to a total of Rs 1 lakh crore during the current financial year, the government will provide one-time six months' partial credit guarantee to public sector banks for first loss of up to 10 per cent," she said.
This would provide liquidity to the NBFC Sector and, in turn, enable them to continue to play their role in meeting the financing requirements of the productive sectors of economy including MSME, retail and housing.@nsitharamanoffc@nsitharaman@Anurag_Office@ianuragthakur— Ministry of Finance (@FinMinIndia) August 13, 2019
The partial guarantee would help rework the Asset Liability structure within three months to have positive Asset Liability Management in each bucket for the first three months and on cumulative basis for the remaining period.
"At no time during the period for exercise of the option to buy back the assets, should the CRAR (capital to risk weighted assets ratio) go below the regulatory minimum. The promoter shall ensure this by infusing equity, where required," an official statement said.
Assets originated up to March 31, 2019, will only be eligible under this scheme, it said, adding assets should be standard in the books of NBFCs/HFCs on the date of sale. The statement added the pool of assets should have minimum rating of 'AA' or equivalent at fair value prior to the partial credit guarantee by the Government of India.
Manoj Sharma with agency inputs