RBI defines conditions for govt’s special liquidity schemes for NBFCs and HFCs

RBI defines conditions for govt’s special liquidity schemes for NBFCs and HFCs

   Kautilya Academy    01-07-2020

RBI has now laid out eligibility criteria for such special liquidity scheme and it includes registered microfinance institutions (MFIs), NBFCs and HFCs under the respective laws.

The Reserve bank of India on July 1 announced the conditions for the housing finance companies (HFCs) and non-banking finance companies (NBFCs) to be eligible for the government’s special liquidity scheme.

The government had approved a special liquidity scheme that aims at improving NBFCs and HFCs liquidity position so that any potential systematic risks to the financial sector can be avoided.

RBI has now laid out eligibility criteria for such special liquidity scheme and it includes registered microfinance institutions (MFIs), NBFCs and HFCs under the respective laws.

Eligibility conditions for NBFCs and HFCs:

•  CRAR/CAR of HFCs/NBFCs should not be below the regulatory minimum of 15 and 12 percent, as on March 31, 2021. Also, their net non-performing assets should not be more than 6 percent.

•  The companies must have made a net profit in at least one of the last two preceding financial years- 2017-2018 and 2018-2019.

•  The companies must not have reported under the SMA-1 or SMA-2 category by any bank for their borrowings during the last one year before August 1, 2018.


•  The companies should be rated investment grade by a SEBI registered rating agency.

•  They must also comply with the requirements of the Special Purpose Vehicle (SPV) for an appropriate level of collateral from the entity which will be optional and to be decided by SPV.

Special Purpose Vehicle (SPV):

Reserve Bank of India (RBI) announced that State Bank of India’s subsidiary SBICAP has set up a special purpose vehicle (SPV) in order to manage this operation.

The Special Purpose Vehicle (SPV) will purchase the short-term papers from eligible HFCs/NBFCs, who will be utilizing the proceeds under this scheme only for the purpose of extinguishing existing liabilities.

he instruments will be non-convertible debentures (NCDs) and Commercial papers (CPs) with a residual maturity of not more than three months.

However, such kind of facility will not be available for any paper issued and SPV will cease to make fresh purchases after September 30, 2020. SPV will recover all dues by December 31, 2020, or if maybe modified under the scheme.


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