Govt extends partial credit guarantee for NBFCs, HFCs

With a view to provide additional liquidity to crisis-ridden NBFCs and housing finance companies (HFCs), the government relaxed norms for Partial Credit Guarantee Scheme (PCGS) for purchase of bonds and commercial papers by public sector banks and extended its period by three months.

Keeping in view the progress under the Scheme and the fact that the stipulated limit for AA/AA- rated bonds/CPs (commercial papers) has been nearly reached, while the appetite for lower rated papers is nearing saturation considering their lower ticket size, the gover nment has now decided to modify PCGS 2.0.

"Additional 3 months have been granted to build up the portfolio. At the end of six months, i.e. by November 19, 2020, the portfolio shall be crystallised based on actual amount disbursed, for the Guarantee to come into effect," a finance ministry statement said.

At the portfolio level, AA and AAinvestment sub-portfolio under the Scheme should not exceed 50%l of the total portfolio of bonds/CPs purchased by public sector banks (PSBs) under the Scheme as against 25%l stipulated earlier.

"It is expected that the above modification will provide greater flexibility to PSBs in purchasing bonds/CPs under PCGS 2.0," it said.

As part of Rs 20.97 lakh crore ' Aatmanirbhar Bharat Abhiyan', announced by the government, PCGS 2.0 was launched on May 20 to provide portfolio guarantee for purchase of papers with a rating of AA and below, issued by NBFCs/HFCs/micro finance institutions (MFIs), by PSBs.

It was envisaged to purchase bonds or CPs of Rs 45,000 crore under PCGS 2.0 of which the maximum headroom permissible for purchase of papers rated AA/AA- was 25%l of the total portfolio i.e. Rs 11,250 crore, the statement said.

In addition, the government had separately announced the Special Liquidity Scheme (SLS) for purchase of CPs and non-convertible debentures (NCDs) issued by NBFCs/HFCs with a residual maturity of up to 3 months, which could be extended for a further period of upto 3 months, of a total value not exceeding Rs 30,000 crore to be extended by the amount required as per need.

Under PCGS 2.0, PSBs have approved purchase of bonds/CPs rated AA/AA- issued by 28 entities and bonds/CPs rated below AA- issued by 62 entities, amounting to Rs 21,262 crore overall.

The average ticket size of bonds/CPs rated below AA- is significantly lower than the average ticket size of bonds/CPs rated AA/AA-.

Under SLS, proposals of Rs 7,464 crore have been approved for purchase so far, it said.