Partial Credit Guarantee Scheme for NBFCs gets cabinet nod

Under the scheme, state-run banks would be able to purchase high-rated pooled assets from financially-sound NBFCs and HFCs "with the amount of overall guarantee being limited to first loss of up to 10 per cent of fair value of assets being purchased by banks, or Rs 10,000 crore, whichever is lower", an official statement said.

New Delhi:The Union Cabinet here on Wednesday approved the 'Partial Credit Guarantee Scheme' for purchase of high-rated pooled assets from financially-sound non-banking financial companies (NBFCs) and housing finance companies (HFCs) by public sector banks (PSBs).

Under the scheme, state-run banks would be able to purchase high-rated pooled assets from financially-sound NBFCs and HFCs "with the amount of overall guarantee being limited to first loss of up to 10 per cent of fair value of assets being purchased by banks, or Rs 10,000 crore, whichever is lower", an official statement said.

The scheme would cover NBFCs and HFCs that might have slipped into "SMA-0" category during the one-year period prior to August 1, 2018, and asset pools rated "BBB+" or higher.

The window for one-time partial credit guarantee offered by the government would remain open till June 30, 2020 or till such date by which Rs 1 lakh crore worth of assets get purchased by the banks, whichever is earlier, the statement said.

The Finance Minister would have the power to extend the validity of the scheme by up to three months by taking into account its progress, it added.

The proposed support and resultant pool buyouts will help NBFCs resolve their temporary liquidity or cash-flow mismatch and also enable them to continue contributing to credit creation and providing the last-mile lending.

In the Union Budget 2019-20, Finance Minister Nirmala Sitharaman had announced the government would provide one-time six-month partial credit guarantee to PSBs for the purchase of assets.