Govt. issues norms for Rs. 1-lakh crore partial guarantee scheme for NBFCs

The Centre has issued guidelines on operationalising the Rs. 1-lakh crore partial guarantee scheme under which the public-sector banks can purchase high-rated pooled assets of financially-sound non-banking finance companies (NBFCs).

NBFCs, including housing finance companies (HFCs), came under stress following a series of defaults by the group companies of IL&FS since September last year.

To help the sector come out of the stress, Finance Minister Nirmala Sitharaman in the Budget announced support for fundamentally-sound NBFCs in getting continued funding from banks.

“For purchase of high-rated pooled assets of financially-sound NBFCs, amounting to a total of Rs. 1 lakh crore during the current financial year, the government will provide a one-time, six months’ partial credit guarantee to public sector banks for first loss of up to 10%,” she had said.

In pursuance of that, the Finance Ministry last week released detailed guidelines for this with the objective to address temporary asset-liability mismatches of otherwise solvent NBFCs/HFCs without having to resort to distress sale of their assets for meeting their commitments.

“At no time during the period for exercise of the option to buy back the assets, should the CRAR (capital to risk weighted assets ratio) go below the regulatory minimum. The promoter shall ensure this by infusing equity, where required,” an official statement said.

As per the guidelines issued, the window for one-time partial credit guarantee will be for a period of six months, or till such date by which Rs. 1 lakh crore assets get purchased by banks. It further said that the pool of assets should have minimum rating of ‘AA’ or equivalent at fair value prior to the partial credit guarantee by the Government of India.