New Delhi: The Union Cabinet, chaired by Prime Minister Narendra Modi, on Wednesday (May 20) approved the Finance Ministry's proposal 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, said a government notification.
Under this scheme, the 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 and purchased by the Reserve Bank of India (RBI) only," according to the statement.
"The proceeds of the sale of such securities would be used by the SPV to acquire short-term debt of NBFCs/HFCs," it said adding that the scheme will be administered by the Department of Financial Services, which will issue the detailed guidelines.
Accordingly, 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 to be purchased by RBI only.
"The SPV would issue securities as per requirement subject to the total amount of securities outstanding not exceeding Rs 30,000 crore to be extended by the amount required as per the need. The securities issued by the SPV would be purchased by RBI and proceeds thereof would be used by the SPV to acquire the debt of at least investment grade of short duration (residual maturity of upto 3 months) of eligible NBFCs/HFCs," the statement said.
Notably, 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. The scheme is likely to be easier to operate and also augment the flow of funds from the non-bank sector," according to the statement.
In the Budget Speech of 2020-21, it was announced that a mechanism would be devised to provide additional liquidity facility to NBFCs/HFCs over that provided through the PCGS. This facility would supplement the liquidity measures taken so far by the government and RBI. The Scheme would benefit the real economy by augmenting the lending resources of NBFCs/HFCs/MFls.
This Budget announcement is being approved to strengthen financial stability on account of the emerging situation of COVID-19 crisis.