Centre has announced a partial guarantee scheme in the budget for non-banking finance companies (NBFCs) and housing finance companies (HFCs). The scheme will allow the Public Sector Banks to purchase their assets.
The scheme is aimed to provide liquidity support to the NBFCs and HFCs. The key reason for the slowdown in the economy is the stress on NBFCs and HFCs. The stress has also caused reduced credit flow to small businesses and consumers. Now, by improving the liquidity the scheme aims to avoid the distress sale of assets in a sector facing a shortage of cash due to asset-liability mismatch. For the implementation of the scheme, the government has planned a mechanism which will elicit information on a real-time basis.
♦ If any assets purchased by a bank from a stressed NBFC or HFC, the Department of Economic Affairs (DEA) will provide a government guarantee of up to 10% of the fair value of assets.
♦ The scheme will be capped at Rs.1 lakh crore and will be open for up to six months.
♦ The government will settle claims by banks within five working days.
♦ NBFCs will have to pay a fee to the government, at 0.25% per annum of the fair value of assets sold to banks.
♦ Standard assets: They will be able to sell 20% of standard assets, worth up to Rs.5,000 crore, as on March 31.
♦ Pooled assets: The one-time guarantee on the pooled assets will be valid for 24 months from the date of purchase and can be invoked in specified circumstances.
♦ The Department of Financial Services will obtain information on transactions in a prescribed format from PSBs and send a copy to the budget division of the Department of Economic Affairs.
♦ NBFCs that registered with RBI and HFCs registered with National Housing Bank can take benefit under the scheme.