Partial Guarantee Scheme for NBFCs

In order to address the liquidity issues haunting the NBFC’s, the government has announced Rs 1-lakh crore Partial Guarantee Scheme for NBFCs and HFCs (non-banking and housing finance companies).

Partial Guarantee Scheme

• Under the Scheme, public-sector banks will purchase high-rated pooled assets of financially sound non-banking finance companies (NBFCs).
• To purchase 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 provide one-time six months’ partial credit guarantee to public sector banks for first loss of up to 10 per cent.
• The window for one-time partial credit guarantee will be for a period of six months, or till such date by which Rs 1 lakh crore assets get purchased by banks.
• 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.

The scheme is aimed at providing liquidity support to avoid distress sale of assets in a sector facing a shortage of cash due to asset-liability mismatch. The stress on NBFCs and HFCs is seen as a key reason for a slowdown in the economy, as it has caused reduced credit flow to small businesses and consumers.