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NBFC liquidity crunch: Banks await relaxation in government's partial credit guarantee scheme

The government had set the target of Rs 1 lakh crore of disbursement under the scheme by February 2020. But lenders have identified pools of around Rs 15,000 crore only as of now.

November 28, 2019 / 09:02 PM IST

It's been over three months since its launch, but the government's partial credit guarantee scheme for banks to buyout loan portfolios from non-banking finance companies (NBFCs) is yet to take off.

The government had set a target to disburse Rs 1 lakh crore worth of loans by February 2020, but lenders have only identified pools of around Rs 15,000 crore as of now.

"We have identified and sanctioned some accounts, but there are some bottlenecks due to which we are yet to receive the guarantee. Once we are through with the guarantee, we will go ahead with disbursements," said a senior official from a state-run bank.

Concerns over the eligibility of pooled assets and the originating NBFC or Housing Finance Companies (HFCs) have been raised before the government.

In her budget speech this year, Finance Minister Nirmala Sitharaman said that the government will provide a one-time partial credit guarantee for six months to state-run lenders for their first loss of up to 10 percent provided they purchase "high-rated" pooled assets of "financially sound" NBFCs.


In August, the scheme was launched with government issuing guidelines for banks to avail the facility. As per the norms, the pool of assets should have minimum rating of 'AA' and NBFCs or HFCs should not have been reported under "SMA" category by any bank for their borrowings during last one year prior to the announcement of the scheme.

"The idea is to bring down the rating requirement. That's where the need for a government guarantee is," said a senior official from Small Industries Development Bank of India (SIDBI), which is the operating agency for the scheme. The official added that it is up to the government and the Reserve Bank of India (RBI) to see if the rating criteria can be lowered by a few notches.

As per norms laid down by RBI, lenders are required to categorize borrowers under Special Mention Accounts (SMA)-0 if they miss loan repayments for 1-30 days, SMA-1 if the default continues for 30-60 days and SMA-2 for 60-90 days.

"Most of the identified assets are from NBFCs that are under SMA-0 category for technical reasons, and not financial weakness. These issues have been flagged but we're yet to receive any clarifications from the government," the official said.

Once the relaxations are announced, the government may also have to consider extending the deadline for banks to meet the target of Rs 1 lakh crore.

The scheme will allow banks to invoke the guarantee if the interest and/or installment of principal turns sour, following which the government will settle the claim within five working days of the claim.

"The scheme is a win-win for banks but clarity is needed," said the official. With the relaxations in place, the official added that the target of Rs 1 lakh crore can be easily achieved.
Parnika Sokhi
first published: Nov 28, 2019 09:02 pm

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