
Special Liquidity Scheme for NBFCs and Housing Finance Companies
Aug 20, 2020
Special Liquidity Scheme for NBFCs and Housing Finance Companies
Q. Why is this in news?
- RBI announces special liquidity scheme for NBFCs and HFCs through a Special Purpose Vehicle (SPV) to avoid any potential systemic risks to the financial sector.
- Also, earlier Finance Minister had announced on 13th March 2020, launch of a Special Liquidity Scheme of Rs. 30,000 crore.
Q. What are the basic features of this scheme?
- RBI will provide funds for the Scheme by subscribing to government guaranteed special securities issued by the Trust.
- The total amount of such securities issued outstanding shall not exceed Rs. 30,000 crores at any point of time.
- Government of India will provide an unconditional and irrevocable guarantee to the special securities issued by the Trust.
Q. Who is eligible for the scheme?
- NBFCs, including Microfinance Institutions that are 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.
Q.Is there any other eligibility criteria?
A. Yes ,
- 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 be rated investment grade by a SEBI registered rating agency.
Q. Which is Implementation body for it?
- SBICAP which is a subsidiary of the State Bank of India has set up a SPV (SLS Trust) to manage this operation.
- The SPV will purchase the short-term papers from eligible NBFCs/HFCs, who shall utilise the proceeds under this scheme solely for the purpose of extinguishing existing liabilities.
- The instruments will be CPs and NCDs with a residual maturity of not more than three months and rated as investment grade.
Q. Till when will it remain open?
- The Scheme will remain open for 3 months for making subscriptions by the Trust.
- The period of lending (CPs/NCDs of NBFCs/HFCs for short duration of up to 90 days) by the Trust shall be for a period of up to 90 days.
- The financing would be used by the NFBCs/HFCs only to repay existing liabilities and not to expand assets