What is Partial Credit Guarantee Scheme approved by Cabinet to public sector banks?
The Union Cabinet has approved modifications to the Partial Credit Guarantee Scheme. The scheme was announced in the Union Budget 2019-20 and issued on August 19, 2019.
Under the scheme, a government guarantee is provided to public sector banks (PSBs) for buying high-rated pooled assets from financially sound non-banking financial companies (NBFCs) and housing finance companies (HFCs).
The government will cover the initial losses up to 10% of the fair value of assets purchased by the banks, or Rs 10,000 crore, whichever is lower.
The modified scheme will also cover NBFCs and HFCs which may have come under the Special Mention Accounts (SMA)-0 sub-category during the one-year period prior to August 1, 2018.
The government expects that the guarantee support will help NBFCs and HFCs resolve their liquidity or cash flow issues. The scheme will be operational till June 30, 2020, or till such date by which one lakh crore rupees worth of assets are bought by the PSBs, whichever is earlier.