GoI approves Special liquidity scheme for NBFCs/HFCs

The Government of India has approved the Special liquidity scheme of Rs 30,000 crore for Non-Banking Financial Company (NBFCs)/ Housing Finance Companies (HFCs).


The Government of India has approved the Special liquidity scheme of Rs 30,000 crore for Non-Banking Financial Company (NBFCs)/ Housing Finance Companies (HFCs). The Special liquidity scheme has been launched with a prime objective of improving the liquidity position of NBFCs/HFCs via a Special Purpose Vehicle (SPV). Reserve Bank of India (RBI) will offer funds for the Scheme by subscribing to government guaranteed special securities issued by the Trust. An unconditional and irrevocable guarantee would be provided by the Government of India, to the special securities issued by the Trust.

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About the Special liquidity scheme for NBFCs/HFCs:

  • Operations of the Special liquidity scheme would be managed by the Special Purpose Vehicle (SLS Trust) set up by SBI Capital Markets Limited (SBICAP), a subsidiary of the State Bank of India.
  • The SPV will purchase the short-term papers from eligible NBFCs/HFCs. These eligible NBFCs/HFCs would be allowed to utilise the proceeds under the Special liquidity scheme merely to extinguish the existing liabilities.
  • The short term papers can be commercial paper (CPs) and Non-convertible debentures (NCDs) with a residual maturity of not more than three months and should be rated as investment grade.
  • The facility will not be available for any paper issued after September 30, 2020. The SPV would cease to make fresh purchases after September 30, 2020 and would recover all dues by December 31, 2020; or as may be modified subsequently under the scheme. Hence, the scheme will remain open for a period of 3 months for making subscriptions by the Trust. The period of lending by the Trust shall be for a period of upto 90 days.

To be eligible under the Scheme, the following conditions should be met by the NBFCs/HFCs:

  • NBFCs including Microfinance Institutions 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 Special Mention Accounts “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.

Important takeaways for all competitive exams:

  • RBI 25th Governor: Shaktikanta Das; Headquarters: Mumbai; Founded: 1 April 1935, Kolkata.
  • Union Minister of Finance: Nirmala Sitharaman.

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