Finance Minister Nirmala Sitharaman on July 5, announced a slew of measures to pull out the NBFCs from distress. Now the finance ministry has issued guidelines for rolling out the budget announcement of offering Rs 1 trillion partial credit guarantee to public sector banks purchasing high-rated pooled assets of financially sound non-bank lenders.
The government, keeping in mind the prolonged distress the NBFCs are facing, took this step. NBFCs and housing finance companies plunged into distress following the series of defaults by Infrastructure Leasing and Financial Service Ltd (IL&FS) last year and Diwan Housing Finance Ltd (DHFL) this year.
Sitharaman, in order to curb the problem of asset-liability mismatch, announced that for purchase of high-rated pooled assets of financially sound NBFCs, amounting to a total of Rs 1 lakh crore during the current financial year, the government will also provide one-time six months' partial credit guarantee to public sector banks for first loss of up to 10 per cent.
The guidelines also mentioned that the pool of assets should have a minimum rating of 'AA' or equivalent at fair value prior to the partial credit guarantee by the government of India.
1. Except for microfinance institution and core investment companies, all NBFCs registered with the RBI excluding would be eligible for the facility.
2. They should have made a net profit in at least one of the last two preceding financial years (2017-18 and 2018-19).
3. Their net NPA should not be more than six 6 per cent as of March 31, 2019.
4. All HFCs registered with the National Housing Bank and meeting the conditions of net profit, NPAs (less than 6 per cent) will be eligible for the facility.
5. MFIs and core investment companies are not covered under the scheme, said the Finance Ministry has said.
1. The scheme stipulates that assets originated up to March 31 this year will only be eligible under this scheme.
2. The pool of assets should have a minimum rating of ‘AA’ or equivalent at fair value prior to the partial credit guarantee by the government.
3. NBFCs/HFCs can sell up to a maximum of 20 per cent of their standard assets as on March 31, 2019 subject to a cap of ₹5,000 crore at fair value.
4. The underlying assets should represent the debt obligations of a homogenous pool of obligors and individual asset size in the pool is capped at ₹5 crore.
5. Originating NBFCs/HFCs cannot assign revoking credit facilities; assets purchased from other entities and assets with bullet repayment of both principal and interest, the Finance Ministry has said.
6. The entire process of execution of the partial credit guarantee will happen through SIDBI. The public sector bank concerned will have to submit the proposal for execution of guarantee under the scheme to SIDBI along with rating details.