Money & Banking

Centre plays Santa for troubled NBFCs, HFCs

Our Bureau New Delhi | Updated on December 11, 2019

Sweetens Partial Credit Guarantee Scheme

Coming to the aid of NBFCs affected by the IL&FS blowout and subsequent crisis of confidence in the debt market, the Union Cabinet on Wednesday gave its nod to tweak the existing ₹1-lakh crore partial credit guarantee scheme. This would help broadbase the eligibility of NBFCs/HFCs making use of this scheme and lend greater flexibility.

Also, the much-sought-after dilution in the minimum credit rating for availing the scheme has also been given the go ahead, with the minimum rating of the asset pool now lowered to ‘BBB+’ from the earlier stipulated minimum level of ‘AA’.

The Centre has now created a separate window for those NBFCs/HFCs that may have slipped into the SMA-0 (default 1-30 days) category during the one-year period prior to August 1, 2018 (the period that saw turbulence due to IL&FS).

However, the amount of overall guarantee will be limited to a first loss of up to 10 per cent of fair value of assets being purchased under the scheme or ₹10,000 crore, whichever is lower.

This latest carve-out creates a window for players that have had liquidity challenges even before August 1, 2018, and whose ratings were negatively impacted subsequently due to liquidity woes in the market, largely caused by the IL&FS blowout.

Bowing to industry demands, the Union Cabinet has now — for the entire scheme — revised the minimum rating of the underlying asset pool being purchased by public sector banks from the existing stipulation of ‘AA’ to ‘BBB+’

Scheme validity extended

Meanwhile, the one-time partial credit guarantee scheme will now remain open till June 30, 2020, or till such date by which ₹1,00,000 crore in assets get purchased by banks, whichever is earlier. Power has also been delegated to the Finance Minister to extend the validity of the Scheme by up to three months taking into account its progress, an official release said.

Earlier, it was announced — when the scheme was operationalised in August — that the scheme would be valid till March 31, 2020 or until purchase of ₹1-lakh crore in assets by banks.

Experts’ take

Welcoming the move, Raman Aggarwal, Co-Chairman, Finance Industry Development Council (FIDC), said it is a vindication of the FIDC’s stance that the scheme in its original avatar, which mandates a minimum AA rating, had very limited scope. “There was a need to dilute the rating criteria and this has now been addressed,” he said.

S Srinath, a senior executive in the BFSI sector, said the move was a positive one to make liquidity accessible for a wider set of NBFCs, even with BBB+ rated asset pools.

“Any such liquidity infusion under the partial credit guarantee would help these NBFCs to onward lend for stalled or fresh disbursements,” he said.

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Published on December 11, 2019

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