Slow start to partial guarantee plan for NBFCs

Tribune News Service
New Delhi, July 15

Advertisement

The government’s effort to help out low-rated non banking financial companies has been off to a steady start with public sector banks (PSBs) approving purchase of bonds or commercial papers issued by 67 NBFCs amounting to Rs 14,667 crore.

The purchase of bonds/commercial papers of Rs 6,125 crore, including Rs 5,550 crore rated below AA, is currently under various stages of approval or at negotiation stage, said the Union Finance Ministry.

Recent downgrades in some NBFCs have added pressure on mutual fund portfolios leading to Finance Minister Nirmala Sitharaman announcing a partial guarantee scheme for primary market borrowings of NBFCs, including bonds and commercial paper.

After the lukewarm response to the first Partial Credit Guarantee Scheme (PCGS), its second and ongoing edition was revamped under the Aatmanirbhar Bharat Package to support the liability side of NBFCs by providing a 20 per cent portfolio guarantee to PSBs for the purchase of bonds or commercial papers rated AA and below issued by NBFCs.

The one-time partial credit guarantee will be of Rs 10,000 crore to banks, meaning that Rs 50,000 crore of bonds, commercial papers and pooled assets of NBFCs and housing finance companies are targeted to be purchased.

This is an improvement on the budget announcement where the government compensation was 10 per cent under the first partial credit guarantee scheme because banks had just 10 per cent of the targeted amount.