• 9964432222
  • Mail Us
  • Appointment
  • Locate Us
  • Chat Now
  • Courses
  • Login
  • Register
Manifest IAS
JournalsOfIndia
Manifest Learning Academy
  • Home
  • SNIPPETSfor Prelims
  • ARTICLESfor Mains
  • BROWSEBY SOURCE
  • DOWNLOADS
No Result
View All Result
  • Home
  • SNIPPETSfor Prelims
  • ARTICLESfor Mains
  • BROWSEBY SOURCE
  • DOWNLOADS
No Result
View All Result
JournalsOfIndia
No Result
View All Result
Home Economy

Scheme to provide a one-time partial credit guarantee to PSBs for purchase of pooled assets of financially sound NBFCs

September 19, 2019
in Economy
Reading Time: 5 mins read
0
18
VIEWS
Share on WhatsAppShare on TelegramShare on Facebook
image_pdfMake PDF

Source: Press Information Bureau

In pursuance of the announcement made in the Union Budget 2019-20 presented by the Union Minister of Finance has issued a scheme regarding partial credit guarantee on 10th August 2019. The Scheme would enable the public sector banks (PSBs) to purchase pooled assets of financially sound NBFCs amounting to Rs. one lakh crore.

Significance

It is expected that this measure would provide liquidity to the NBFC Sector and, in turn, enable them to continue to play their role in meeting the financing requirements of the productive sectors of the economy including MSME, retail and housing.

Objective

To address temporary asset-liability mismatches of otherwise solvent NBFCs/HFCs without having to resort to distress sale of their assets for meeting their commitments.

The validity of the scheme: The window for one-time partial credit guarantee offered by GoI will open from the date of issuance of the Scheme by the Government for a period of six months, or till such date by which Rupees One lakh crore assets get purchased by banks, whichever is earlier.

A.Operational Guidance:

  • The assets shall be purchased by banks at fair value.
  • Assets to be assigned by NBFCs/HFCs must be rated by Credit Rating Agencies (CRAs) accredited by Reserve Bank of India (RBI).
  • One-time guarantee provided by the GoI on the pooled assets will be valid for 24 months from the date of purchase and can be invoked on the occurrence of default as outlined under heading ‘D’ below. The guarantee shall cease earlier if the purchasing bank sells the pooled assets to the originating NBFC/HFC or any other entity, before the validity of the guarantee period.
  • The purchasing banks may have service level agreements with the originating NBFCs/HFCs for servicing, including administration of the individual assets.
  • The NBFCs/HFCs can have the option to buy back their assets after a specified period of 12 months as a repurchase transaction, on a right of first refusal basis.

B.Eligible NBFCs/HFCs:

  • The NBFCs registered with RBI under the Reserve Bank of India Act, excluding those registered as Micro Finance Institutions and Core Investment Companies.
  • HFCs registered with National Housing Bank (NHB) under the National Housing Bank Act.
  • The CRAR of NBFCs/CAR of HFCs should not be below the regulatory minimum (i.e. 15% for NBFCs and 12% for HFCs) as on 31.3.2019.
  • Their net Non-Performing Asset should not be more than 6% as on 31.3.2019.
  • They should have made a net profit in at least one of the last two preceding financial years (i.e. FY 2017-18 and 2018-19).
  • The NBFCs/HFCs should not have been reported under the SMA category by any bank for their borrowings during the last one year prior to 1.8.2018.
  • Micro Finance Institutions and Core Investment Companies are not covered under the Scheme.                                                            

C.Eligible assets:

  • Assets originated up to 31.3.2019 will only be eligible under this scheme.
  • Assets should be standard in the books of NBFCs/HFCs on the date of sale.
  • The pool of assets should have a minimum rating of ‘AA’ or equivalent at fair value prior to the partial credit guarantee by GoI.
  • Each account under the pooled assets should have been fully disbursed and security charge should have been created in favour of the originating NBFCs/ HFCs.
  • NBFCs/HFCs can sell up to a maximum of 20% of their standard assets as on 31.3.2019 subject to a cap of Rs. 5,000 crore at fair value. Any additional amount above the cap of Rs. 5,000 crore will be considered on a pro-rata basis, subject to availability of headroom.
  • The underlying assets should represent the debt obligations of a homogeneous pool of obligors and individual asset size in the pool is capped at Rs. 5 crore (i.e. asset pool should be sufficiently granular).
  • Originating NBFCs/HFCs cannot assign the following assets under this Scheme:
  1. a)  Revolving credit facilities;
  2. b)  Assets purchased from other entities; and
  3. c)   Assets with bullet repayment of both principal and interest.

D.Invocation of Guarantee:

The purchasing bank can invoke the GoI guarantee if the interest and/or instalment of principal remains overdue for a period of more than 90 days (i.e. when liability is crystalized for the underlying borrower) during the validity of such guarantee, subject to the condition that the guarantee is for the first loss up to 10.

E.Reporting and claims:

  • There should be a process of real-time reporting of such transactions by the banks to GoI and to get the information on remaining available headroom for the purchase of such pooled assets. The Department of Financial Services (DFS), Ministry of Finance would obtain the requisite information in a prescribed format from the PSBs and send a copy to the budget division of DEA.
  • GoI shall settle such claims by the banks within 5 working days from the date of claim.
  • Upon recovery of the accounts for which the purchasing bank had invoked the GoI guarantee and received the claim from GoI, the guarantee amount, or the amount recovered, whichever is lower, should be passed on by banks to the GoI within 5 working days from the days of receipt in its books, subject to the condition that in case the guarantee amount is lower than the recovery shortfall the gap would be filled by the bank receiving the guarantee, but when the recovered amount is higher than the guaranteed amount than the excess over the guarantee amount would be kept by the bank.
  • Any loss crystalized up to 24 months is eligible for claim from GoI under the Scheme, provided such pooled assets are not (a) bought back by the concerned NBFCs/HFCs or (b) sold by the purchasing bank to other entities.

F.Guarantee Fees:

NBFCs/HFCs will pay a fee equivalent to 0.25% per annum of the fair value of assets being purchased by the bank under this Scheme to GoI (must be routed through the purchasing bank).

G.The NBFCs/HFCs whose assets are sold under this Scheme shall undertake the following:

  • It should rework the Asset Liability structure within three months to have positive ALM in each bucket for the first three months and on a cumulative basis for the remaining period.
  • At no time during the period for the exercise of the option to buy back the assets, should the CRAR go below the regulatory minimum. The promoter shall ensure this by infusing equity, where required.

 

image_pdfMake PDF
Tags: Prelims

Related Posts

Revamped CGTMSE Scheme

Revamped CGTMSE Scheme

May 1, 2023
Common Reporting Standard

Common Reporting Standard

May 1, 2023
What is Gum Arabic?

What is Gum Arabic?

May 1, 2023
World Development Report 2023: Migrants, Refugees, and Societies

World Development Report 2023: Migrants, Refugees, and Societies

April 27, 2023
Manamadurai pottery

Manamadurai pottery

April 26, 2023
Logistic Performance Index (LPI) 2023

Logistic Performance Index (LPI) 2023

April 25, 2023
Parvatmala Pariyojana

Parvatmala Pariyojana

April 22, 2023
CPCB revised the financial grants for biomass pellet manufacturing units

CPCB revised the financial grants for biomass pellet manufacturing units

April 22, 2023
Global Unicorn Index 2023 by Hurun

Global Unicorn Index 2023 by Hurun

April 22, 2023
Mission 50K-EV4ECO of SIDBI

Mission 50K-EV4ECO of SIDBI

April 21, 2023
Please login to join discussion

Our Offline Classroom Student

CONGRATULATIONS TO 2021 TOPPERS !!!

Rank 171 Kumar Shivashish
Rank 250 Sahithya
Rank 263 Sumit Kumar Thakur
Rank 311 Deepak Ramachandra Shet
Rank 455 Ravinandan B M

June 2025
MTWTFSS
 1
2345678
9101112131415
16171819202122
23242526272829
30 
« May    

Browse by Category

  • Agriculture
  • Disaster Management
  • Economy
  • Environment
  • Ethics
  • Foreign Affairs
  • Geography
  • Governance
  • History
  • Law & Policy
  • Opinion
  • People in News
  • Places in News
  • Science & Tech
  • Security
  • Society
  • Sports
  • Uncategorized

Browse by Tags

AIR All India Radio BBC Business Line Business Standard dow Down to Earth DownToEarth DTE Economic Times ET FAO Financial Express GS-1 GS-2 GS-3 GS-4 Hindustan Times IE India & the world Indian express Indiatoday India today Kurukshetra Livelihoods portal LiveMint Mains News Newspaper News Paper PIB Prelims PRS India RSTV Science Reporter Survey The Hindu The India Express The Indian Express The Print the wire Times of India TOI TOPPERS Yojana
JournalsOfIndia

Our vision is to orient the readers to grasp the facts objectively and analyse critically. In the rush of reaching first to the readers, the websites miss the balanced opinion, which is the need of the hour. We aim to reach the readers with more crispness, preciseness and relevance. We bring the articles in UPSC way for the civil services aspirants and the Wisest Way for general readers.

Categories

  • Agriculture
  • Disaster Management
  • Economy
  • Environment
  • Ethics
  • Foreign Affairs
  • Geography
  • Governance
  • History
  • Law & Policy
  • Opinion
  • People in News
  • Places in News
  • Science & Tech
  • Security
  • Society
  • Sports
  • Uncategorized

Browse by Tag

AIR All India Radio BBC Business Line Business Standard dow Down to Earth DownToEarth DTE Economic Times ET FAO Financial Express GS-1 GS-2 GS-3 GS-4 Hindustan Times IE India & the world Indian express Indiatoday India today Kurukshetra Livelihoods portal LiveMint Mains News Newspaper News Paper PIB Prelims PRS India RSTV Science Reporter Survey The Hindu The India Express The Indian Express The Print the wire Times of India TOI TOPPERS Yojana

Newsletter

The most important UPSC news and events of the day.

Get Journals daily newsletter on your inbox.

© 2020 JournalsOfIndia - A free initiative by Manifest Team.

  • Login
  • Sign Up
  • Home
  • SNIPPETS
  • ARTICLES
  • BROWSE
  • DOWNLOADS
No Result
View All Result

© 2020 JournalsOfIndia - A free initiative by Manifest Team.

Welcome Back!

Login to your account below

Forgotten Password? Sign Up

Create New Account!

Fill the forms bellow to register

All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In