RBI announces Special liquidity scheme for NBFCs/HFCs

The Government of India on Wednesday July 1, 2020, has approved a scheme to improve the liquidity position of NBFCs/HFCs through a Special Purpose Vehicle (SPV) to avoid any potential systemic risks to the financial sector. 

The Non-Banking Financial Company (NBFCs), including Microfinance Institutions that are registered with the RBI, under the Reserve Bank of India Act, 1934, excluding those registered as Core Investment Companies. The Housing Finance Companies that are registered under the National Housing Bank Act, 1987 are also eligible under the scheme. According to RBI notification, the entities are required to meet following conditions to be eligible under the scheme.

1. CRAR/CAR of NBFCs/HFCs should not be below the regulatory minimum, i.e., 15% and 12% respectively as on March 31, 2019
2. The net non-performing assets should not be more than 6% as on March 31, 2019
3. They should have made net profit in at least one of the last two preceding financial years (i.e. 2017-18 and 2018-19)
4.  They should not have been reported under SMA-1 or SMA-2 category by any bank for their borrowings during last one year prior to August 01, 2018
5. They should be rated investment grade by a SEBI registered rating agency
6. They should comply with the requirement of the SPV for an appropriate level of collateral from the entity, which, however, would be optional and to be decided by the SPV.

 The press release of the Reserve Bank said that SBICAP which is a subsidiary of the State Bank of India has set up an SPV (SLS Trust) to manage this operation, as per the Government decision. The SPV will purchase the short-term papers from eligible NBFCs/HFCs, who shall utilise the proceeds under this scheme solely for the purpose of extinguishing existing liabilities it said. The instruments will be CPs and NCDs with a residual maturity of not more than three months and rated as investment-grade it added.

The facility will not be available for any paper issued after September 30, 2020, and the SPV would cease to make fresh purchases after September 30, 2020, and would recover all dues by December 31, 2020; or as may be modified subsequently under the scheme, it said.