Government modifies Partial Credit Guarantee Scheme 2.0

Our Bureau. New Delhi | Updated on August 17, 2020

The Finance Ministry, on Monday, announced plans to extend and modify the Partial Credit Guarantee Scheme (PCGS) 2.0.

It has been decided to extend the scheme for three more months to build up the portfolio. At the end of six months(by November 19), the portfolio will be crystallised based on the actual amount disbursed for the guarantee to come into effect. At the portfolio level, ‘AA’ and ‘AA (-)’ rated investment sub-portfolio under the scheme should not exceed 50 per cent against 25 per cent earlier of the total portfolio of bonds/ CPs (commercial paper) purchased by Public Sector Banks under the scheme.

In May, Aatma Nirbhar Package revamped and extended the existing PCGS to cover the borrowings of lower-rated NBFCs, (non-banking fnance companies) HFCs (housing finance companies) and other MFIs (micro finance institutions). Under the ₹45,000-crore PCGS 2.0, the government will provide 20 per cent first loss sovereign guarantee to PSBs for the purchase of bonds or commercial papers with a rating of AA and below (including unrated paper) issued by NBFCs/HFCs or MFIs.

While the original scheme supported the transfer of assets from NBFCs/HFCs to PSBs, 2.0 scheme addresses temporary liquidity/ cash flow mismatches of otherwise solvent NBFCs/HFCs/MFIs without having to resort to distress sale of their assets to meet their commitments.

In addition, the government had separately announced the Special Liquidity Scheme for purchase of Commercial Papers (CPs) and non-convertible debentures (NCDs) issued by NBFCs/HFCs with a residual maturity of up to three months, which could be extended for a further period of up to three months, of a total value not exceeding ₹30,000 crore, to be extended by the amount required as per need.

Under PCGS 2.0, PSBs have approved purchase of bonds/ CPs rated ‘AA/AA-‘ issued by 28 entities, and bonds/CPs rated below AA- issued by 62 entities, amounting to ₹. 21,262 crore. The average ticket size of bonds/CPs rated below ‘AA-is significantly lower than the average ticket size of bonds/CPs rated ‘AA/AA-‘. Under SLS, proposals of ₹ 7,464 crore have been approved so far for purchase.

Published on August 17, 2020

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