Partial credit guarantee to Public Sector Banks

(Ministry of Finance)

 

WHAT

Government issues Scheme to provide a one-time partial credit guarantee to Public Sector Banks (PSBs) for purchase of pooled assets of financially sound Non-Banking Financial Companies (NBFCs) amounting to Rs. one lakh crore.

 

SIGNIFICANCE

The step would provide liquidity to NBFCs and enable them to continue to play their role in meeting the financing requirements of productive sectors of the economy.

 

OBJECTIVE

To address temporary asset-liability mismatches of otherwise solvent NBFCs/HFCs without having to resort to distress sale of their assets for meeting their commitments.

 

SCHEME VALIDITY

The window for a one-time partial credit guarantee offered will open from the date of issuance of the Scheme by the Government for a period of six months, or till such date by which Rupees One lakh crore assets get purchased by banks, whichever is earlier.

 

OPERATIONAL GUIDANCE

• The assets shall be purchased by banks at fair value.
• Assets to be assigned by NBFCs/HFCs must be rated by Credit Rating Agencies (CRAs) accredited by Reserve Bank of India (RBI).
• A one-time guarantee provided by the GoI on the pooled assets will be valid for 24 months from the date of purchase.
• The guarantee shall cease earlier if the purchasing bank sells the pooled assets to the originating NBFC/HFC or any other entity, before the validity of the guarantee period.
• The purchasing banks may have service level agreements.
• The NBFCs/HFCs can have the option to buy back their assets after a specified period of 12 months as a repurchase transaction, on a right of first refusal basis.

 

Source: PIB

 

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