The Union Cabinet on Wednesday approved the proposal of the Ministry of Finance to launch a new Special Liquidity Scheme for Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) to improve the liquidity position of the NBFCs, HFCs.
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The Central Government has proposed a framework for addressing the liquidity constraints of Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) through a special liquidity scheme. An SPV would be set up to manage a Stressed Asset Fund (SAF) whose special securities would be guaranteed by the Government of India and purchased by the Reserve Bank of India (RBI) only.
The proceeds of sale of such securities would be used by the SPV to acquire short-term debt of NBFCs/HFCs1. The Scheme will be administered by the Department of Financial Services, which will issue the detailed guidelines, the press release said.
As part of the implementation schedule, a large public sector bank would set up an SPV to manage a stressed asset fund which would issue interest bearing special securities guaranteed by the Government of India, to be purchased by RBI only.
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- 1. The Partial Credit Guarantee Scheme involves multiple bilateral deals between various public sector banks & NBFCs and requires NBFCs to liquidate their current asset portfolio and involves flow of funds from public sector banks. However, the proposed scheme would be a one-stop arrangement between the SPV and the NBFCs without having to liquidate their current asset portfolio. The scheme would also act as an enabler for the NBFC to get investment grade or better rating for bonds issued.