Finance ministry launched a special liquidity scheme of Rs.30,000 crores, the second version of partial credit guarantee scheme worth Rs.40,000 crores and Long Term Repo Operations scheme worth Rs. 1.5 lakh crore by RBI to provide liquidity to non- triple-A rated NBFCs. The second version of the partial credit guarantee scheme has worked well for all non-triple-A rated NBFCs, releasing funds for them. The new design of the scheme designed to help weaker or distressed NBFCs desperately seeking cash amidst economic uncertainty caused by Covid-19.
The partial credit guarantee scheme was introduced by the finance minister Nirmala Sitaraman in the budget to help the NBFCs in India. This scheme offered to Public sector banks to purchase pooled assets from Non-Banking Finacial Companies. The first version of the scheme worth Rs.1 lakh crore was introduced last year was not effective because only very little amount disbursed.
This effort aims to increase the loan flow to low rated non-banking lenders. Joined effort from Central bank and the Government helped to ensure liquidity and had an effect on the whole supply chain of NBFCs. Unlike the first version of the scheme, now the return of business normalcy is visible. Some of the beneficiaries of this scheme are ECL Finance, Indiabulls Housing Finance N, Piramal Capital, IIFL Finance, Shriram Transport, and Cholamandalam. Umesh Revankar, MD at Shriram Transport Finance said that “As long as the government extends guarantee, banks feel comfortable to lend under the PCG”. This effort aims to increase the loan flow to low rated non-banking lenders.
A dedicated liquidity window for non-bank entities called Targeted Long Term Repo Operations conducted by Reserve Bank of India in March and April. The majority of the first portion of the scheme worth Rs.1 lakh crore went to top-rated Non-Banking Financial Companies. So central-bank carry out additional TLTROs for Rs.50,000 crores and banks were mandated to invest in small, medium-sized and microfinance institutions
According to the RBI data, the Government reduced the interest rates for non-triple-A non-bank lenders and the yield spread on AA+ rated bonds from 307 bps to 104 bps. In this same period, the gauge on AA bond also reduced to 142 bps from 344 bps.
