Approval of Partial Credit Guarantee
Scheme to increase cash in NBFC sector.
New Delhi:
The Union Cabinet on Wednesday approved the Partial Credit Guarantee Scheme.
The proposal was introduced by state-run banks to promote the purchase of
well-rated pooled assets from financially sound non-banking finance companies
(NBFCs). According to a statement from the Finance Ministry, under the scheme,
state-run banks will be able to buy highly rated pooled assets from strong
NBFCs and housing finance companies (HFCs). In this purchase, there will be a
guarantee on the deficit from the government. The amount of the guarantee will
be limited to a maximum of 10% of the fair value of the purchased property or
up to Rs 10,000 crore, whichever is less.
The window for the
plan will be open till 30 June 2020
The scheme will cover
NBFCs and HFCs, which were placed in the SMA-0 category category in the year
prior to August 1, 2018, and whose asset pool is rated BBB + or above.
According to the Reserve Bank of India directive, banks are required to
classify companies in the Special Mention Account (SMA) -0 category which have
defaulted on their liabilities for up to 30 days. Companies with more days
outstanding are put in the SMA-1 and SMA-2 category. On August 1, 2018, the
case of Infrastructure Leasing and Financial Services (ILFS) default was revealed.
According to the statement of the ministry, the window of one time partial
credit guarantee will remain open till June 30, 2020 or till the banks have
purchased properties worth one lakh crore rupees, whichever is earlier. In view
of the progress of the scheme, the Finance Minister may extend this period to
three months.
Why plan is important
This scheme will
increase cash with NBFC companies. With this, those companies will be able to
contribute to the development of debt and to bring the loan to the end. In the
2019-20 budget, Finance Minister Nirmala Sitharaman had said that the
government will give a six-month partial credit guarantee to state-owned banks
once for the purchase of assets.
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