2020 – Posted in: Press Information Bureau – Tags: NBFC, PSBs, RBI

Partial Credit Guarantee Scheme

Cabinet

WHAT

Union Cabinet approves “Partial Credit Guarantee Scheme” for purchase of high-rated pooled assets from financially sound Non-Banking Financial Companies (NBFCs) / Housing Finance Companies (HFCs) by Public Sector Banks (PSBs)

FEATURES

Partial Credit Guarantee Scheme”, to be offered by the Government of India to PSBs for purchasing high-rated pooled assets from financially sound NBFCs / HFCs, with the amount of overall guarantee being limited to first loss of up to 10 percent of fair value of assets being purchased by the banks under the Scheme, or Rs. 10,000 crore, whichever is lower, as agreed by the Department of Economic Affairs (DEA).

The window for one-time partial credit guarantee offered by Gol will remain open till 30th June, 2020 or till such date by which Rs. 1,00,000 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.

IMPACT

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.

OBJECTIVE

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.

Source: PIB