RBI outlines conditions for govt’s special liquidity schemes for NBFCs, HFCs

Mumbai: The Reserve Bank of India (RBI) on Wednesday said the government has approved a special liquidity scheme for non-banking finance companies (NBFCs) and housing finance companies (HFCs) to improve their liquidity position in order to avoid any potential systemic risks to the financial sector.

RBI laid out eligibility criteria for such special liquidity scheme and it includes registered NBFCs, micro-finance institutions (MFIs) and HFCs under respective laws.

It also stipulated that the CRAR/CAR of NBFCs/HFCs should not be below the regulatory minimum of 15 per cent and 12 per cent, respectively as on March 31, 2019, and their net non-performing assets should not be more than 6 per cent.

These companies should have made net profit in at least one of the last two preceding financial years - 2017-18 and 2018-19 - and should not have been reported under SMA-1 or SMA-2 category by any bank for their borrowings during last one year prior to August 01, 2018.

They should also be rated investment grade by a Sebi registered rating agency and should comply with the requirement of the SPV for an appropriate level of collateral from the entity which would be optional and to be decided by the SPV.

The central bank said State Bank of India’s subsidiary SBICAP has set up a special purpose vehicle (SPV) -- SLS Trust to manage this operation.

The SPV will purchase the short-term papers from eligible NBFCs/HFCs, who will utilize the proceeds under this scheme only for the purpose of extinguishing existing liabilities.

The instruments will be commercial papers (CPs) and non-convertible debentures (NCDs) with a residual maturity of not more than three months and rated as investment grade.

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

“NBFCs have CP repayments of close to Rs. 65,000 crore between July and September of this year. These NBFCs could benefit considerably from this special liquidity window,” said Sharad Mittal, CEO, Motilal Oswal Real Estate Fund.

“While clear norms have been identified to assess NBFCs/HFCs that will be eligible for this scheme, to what extent each of the entities will be eligible is unclear as of now,” Mittal added.