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NBFC crisis: Govt issues guidelines for Rs 1-lakh crore partial guarantee scheme to revive sector

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

twitter-logo BusinessToday.In   New Delhi     Last Updated: August 14, 2019  | 09:37 IST
NBFC crisis: Govt issues guidelines for Rs 1-lakh crore partial guarantee scheme to revive sector
The NBFC sector has come under stress following a series of defaults by the group companies of IL&FS in September last year.

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.

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.

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.

Also read: NBFC crisis has bottomed out; govt, RBI will closely monitor situation: FM

Is LIC emerging as the lender of last resort for the battered NBFC sector?

Manoj Sharma with agency inputs

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