Rs 30,000 Cr Special Liquidity Scheme for NBFCs and HFCs Announced by Finance Ministry

COVID 19 has impacted on every facet of our lives. So as every aspect of financial ecosystem is majorly stressed by this. In a bid to provide funds to the stressed NBFC sector, Finance Minister Nirmala Sitharaman extended a Rs 30,000 crore special liquidity window for entities that are finding it difficult to raise money from the market amid the COVID-19 crisis.

Under this scheme, investment will be made in both primary and secondary market in investment-grade debt papers of non-bank finance companies (NBFCs), housing finance companies (HFCs) and microfinance institutions (MFIs).

“We have been hearing that NBFCs were not able to get enough resources despite efforts from government and RBI, especially those which were particularly not highly rated,” the Finance Minister said. She was addressing a press briefing here to provide details of the Government’s Rs 20 lakh crore stimulus package for the coronavirus-hit economy.

The scheme will supplement the Reserve Bank of India and Government measures to augment liquidity by providing guarantee to investment grade securities, she added.

These NBFCs are mostly those which are financing MSMEs, she said, adding this will provide liquidity support for NBFCs/HFCs/MFIs and mutual funds and create confidence in the market.  Further, a Rs  45,000 crore partial credit guarantee scheme 2.0 was also unveiled for NBFCs, HFCs and MFIs with low credit rating to help them extend loans to individuals and MSMEs.

Even prior to the coronavirus crisis, the NBFC sector had been under stress. Immediately after the IL&FS crisis in September 2018, NBFCs faced severe liquidity crunch as mutual funds (MFs) stopped refinancing their loans.

The Government had announced a series of measures including partial credit guarantee scheme (PCGS) in the last two Budgets.

The earlier scheme had certain restrictions which the Government has decided to do away with as NBFCs, HFCs and MFIs with low credit rating require liquidity for fresh lending to MSMEs and individuals.The scheme announced in Budget 2019-20 covered the liability side. The existing PCGS scheme will be extended to cover borrowings such as primary issuance of bonds/commercial papers (liability side of balance sheet) of such entities, she said.