The Cabinet on May 21 approved modifications to the existing Partial Credit Guarantee Scheme (PCGS), raising the guarantee on first loss on purchase of bonds and commercial papers (rating of AA and below) by banks to up to 20 percent.
This is a one-time partial credit guarantee offered by the government. It will remain open till March 31, 2021, on purchase of pooled assets and for the period as specified under the Scheme for purchase of Bonds or CPs, or till such date by which Rs 10,000 crore worth of guarantees, including both guarantees toward the purchase of pooled assets and Bonds or CPs, are provided by the Government, whichever is earlier.
The facility has been extended for bonds and CPs of non-banking finance companies (NBFCs), housing finance companies (HFCs) and micro-finance institutions (MFIs) being bought by public sector banks (PSBs).
What are the modifications?
As per the modifications, NBFCs and HFCs reported under SMA-1 category on technical reasons alone during the last one year period prior to September 1, 2018, are eligible. Earlier, NBFCs and HFCs reported as SMA-1 or SMA-2 during this period were ineligible under the Scheme.
Further, the government has relaxed the net profit criteria to the extent that the concerned NBFC or HFC should now have made a profit in at least one of the financial years of FY2017-18, FY 2018-19 and 2019-20. Earlier, the NBFC/HFC should have made a net profit in at least one of the financial years of FY 2017-18 and2018-19.
It has also relaxed the criteria for date of origination of assets to include new assets originating up to at least six months prior to the date of initial pool rating. Earlier, only assets originated up to 31.3.2019 were eligible under the Scheme.
The date for the purchase of pooled assets has been extended from June 30, 2020, to March 31, 2021.
As per the previous PCGS issued on December 11, 2019, a sovereign guarantee was offered on up to 10 percent of the first loss to PSBs for purchasing pooled assets worth rated BBB+ or above worth up to Rs 1,00,000 crore, from financially sound NBFCs or MFCs.
The extension was announced by Finance Minister Nirmala Sitharaman as part of the Rs 20 lakh crore financial stimulus package. Now, MFIs – which also play a critical role in extending credit to small borrowers are also included.