Cabinet approves 'Partial Credit Guarantee Scheme'

The Union Cabinet on Wednesday gave its approval to the Partial Credit Guarantee Scheme that allows public sector banks (PSBs) to purchase high-rated pooled assets from financially sound NBFCs and HFCs.

New Delhi: The Union Cabinet, chaired by the Prime Minister Narendra Modi, has given its approval to the "Partial Credit Guarantee Scheme.

The scheme, to be offered by the Government of India (Gol) to Public Sector Banks (PSBs) for purchasing high-rated pooled assets from financially sound Non-Banking Financial Companies (NBFCs) / Housing Finance Companies (HFCs), with the amount of overall guarantee being limited to first loss of up to 10% of fair value of assets being purchased by the banks under the Scheme, or Rs 10000 crore, whichever is lower, as agreed by Department of Economic Affairs (DEA).

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

The window for one-time partial credit guarantee offered by Gol will remain open till 30 June 2020 or till such date by which Rs 100000 crore assets get purchased by the Banks, whichever is earlier. Power has been delegated to the Finance Minister to extend the validity of the Scheme by up to three months taking into account its progress.

The proposed Government Guarantee support and resultant pool buyouts will help address NBFCs/HFCs resolve their temporary liquidity or cash flow mismatch issues, and enable them to continue contributing to credit creation and providing last mile lending to borrowers, thereby spurring economic growth.

The Scheme is offered to Public Sector Banks with the objective that the purchase of pooled assets enabled by Government guarantee support under the Scheme, will help to address temporary liquidity/cash flow mismatch issues of otherwise solvent NBFCs / HFCs without them having to resort to distress sale of their assets for meeting their commitments.

This will provide liquidity to the NBFC / HFC concerned for financing the credit demand of the economy, and also protect the financial system of the country from any adverse contagion effect that may arise due to the failure of such NBFCs / HFCs.