Special Liquidity Scheme for NBFC and HFC of Rs 30000 cr

July 15, 2020
Special Liquidity Scheme for NBFC and HFC

The Government of India has approved a Special Liquidity Scheme for NBFC and HFC to improve the liquidity position of NBFCs/HFCs through a Special Purpose Vehicle (SPV) to avoid any potential systemic risks to the financial sector.

Eligibility under Special Liquidity Scheme for NBFC and HFC

To be eligible under the Scheme, the following conditions should be met:

  • NBFCs including Microfinance Institutions that are registered with the RBI under the Reserve Bank of India Act, 1934, excluding those registered as Core Investment Companies;
  • Housing Finance Companies that are registered under the National Housing Bank Act, 1987;
  • CRAR/CAR of NBFCs/HFCs should not be below the regulatory minimum, i.e., 15% and 12% respectively as on March 31, 2019;
  • The net non-performing assets should not be more than 6% as on March 31, 2019;
  • They should have made net profit in at least one of the last two preceding financial years (i.e. 2017-18 and 2018-19);
  • They should not have been reported under SMA-1 or SMA-2 category by any bank for their borrowings during last one year prior to August 01, 2018;
  • They should be rated investment grade by a SEBI registered rating agency;
  • They should comply with the requirement of the SPV for an appropriate level of collateral from the entity, which, however, would be optional and to be decided by the SPV.

How the Scheme works?

A special purpose vehicle (SPV) has been set up to manage a stressed asset fund where the securities will be guaranteed by the government. The SPV would issue securities of up to Rs 30,000 crore and these would be purchased by RBI. The funds thus received from the sale of securities would be used by the SPV to buy short-term investment-grade papers from eligible NBFCs and HFCs, providing them with some liquidity. The instruments will be CPs and NCDs with a residual maturity of not more than three months and rated as investment grade. The facility will not be available for any paper issued after September 30, 2020 and the SPV would cease to make fresh purchases after September 30, 2020 and would recover all dues by December 31, 2020

SBICAP which is a subsidiary of the State Bank of India has set up a SPV (SLS Trust) to manage this operation.

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