The Government of India Launched an Rs.30000 crores scheme for improving the liquidity position of shadow banks on July 1st, 2020. Under the scheme, non-bank lenders will be provided short term liquidity through a special purpose vehicle (SPV) managed by SBICAP, a subsidiary of the SBI. SPV manages the stressed asset fund which would issue interest-bearing special securities whose total amount outstanding not to exceed Rs.30,000 crore, the amount can be extended as per the need.
It was announced in the budget speech of 2020-21, that they would form a mechanism to provide a provision of additional liquidity for Non-Banking Financial Companies (NBFC) and Housing Finance Companies (HFC) over that provided through partial credit guarantee schemes (PCGS). The SPV’s will purchase short term papers from NBFC’S or HFC’S, and can use the proceeds solely to clear their liabilities. The securities issued by SPV would be guaranteed by the government of India and will be purchased by the Reserve Bank of India only. The proceeds from these securities are used to acquire short term debts. The instruments will be commercial papers (CP’s) and non-convertible debentures (NCD’s) with residual maturity of three months. Investment-grade NBFC’s including microfinance Institutions(MFI’s) excluding the ones registered as core investment companies are also qualified for the scheme.
To be eligible for this scheme, NBFC’s and HFC’s should not have Net Performing Assets(NPA’s) more than 6% as on 31st March 2019 and they should have made a profit at least in one of the last two preceding years of 2017-18 and 2018-19. There are other criteria like firms that should be rated as investment-grade by a SEBI registered rating agency. This scheme will remain open for three months for subscription by the Trust.
This scheme is likely to facilitate the liquidity measures taken by the government so far. NBFC’S and HFC’s do not have to liquidate their assets, unlike partial credit guarantee scheme. This scheme would enable NBFC to obtain investment grade for bonds issued. This scheme seems easy to operate and also benefits the real economy augmenting flows from non-bank sectors.
There is an urgent need to implement the Special Liquidity Scheme to strengthen financial stability on account of the present COVID-19 situation. Mr. Shaktikanta Das, RBI Governor had discussions with shadow banks and other financial institutions regarding the availability of liquidity and post lockdown strategies for supply and credit of the three-month moratorium on repayment of loan installments.
