Non-banking finance companies (NBFCs) have, till date, offered asset pools of ₹9,155 crore for purchase by banks under the newly-launched Partial Credit Guarantee scheme. Proposals for another ₹33,200 crore under the new scheme are also in the pipeline, the Finance Ministry said.

It may be recalled that Finance Minister Nirmala Sitharaman had, in her Budget speech, announced the partial credit guarantee scheme to enable banks purchase up to ₹1-lakh crore pooled assets of financially-sound NBFCs and housing finance companies (HFCs).

Objective of the facility

The objective of this one-time facility, which will be open for six months or till such date that assets worth ₹1-lakh crore are purchased by banks, whichever is earlier, is to address the temporary asset-liability mismatches of otherwise solvent NBFCs/ HFCs without resorting to distress sale of their assets to meet commitments. The partial credit guarantee is being given to cover the first loss of up to 10 per cent. Under the concept of first-loss guarantee, the guarantor promises to replenish the first losses of the financier up to a certain level.

For instance, in the case of a 10 per cent first-loss guarantee, any loss up to 10 per cent of the total exposure of the acquirer in a particular pool will be compensated by the guarantor, which, in this case, is the government.

A detailed scheme

The Finance Ministry had, in August, come out with a detailed scheme to operationalise the partial credit guarantee announcement in the Budget. The scheme, among other things, stipulated minimum credit rating of ‘AA’ for the NBFC pool of assets that is bought out by the banks under the scheme.

Some of the senior NBFC industry executives said that it would be interesting to see which type of entities are currently availing the partial credit guarantee for ₹9,155 crore.

“Whether the entities (NBFCs) who are offering the pooled assets are public sector or private sector is something to be seen,” said an NBFC industry executive.

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