Government issues guidelines for ₹1 trillion partial credit guarantee for NBFCs

  1. Government has operationalised a partial guarantee scheme announced in the budget for non-banking and housing finance companies(NBFCs and HFCs).
  2. The scheme provides for a one-time partial credit guarantee to Public sector banks(PSBs) for purchase of pooled assets of financially sound NBFCs.
  3. The scheme aims to address temporary asset liability mismatches of otherwise solvent NBFCs/HFCs without having to resort to distress sale of their assets to meet their commitments.
  4. The validity of the scheme offered will be open from the date of issuance of the Scheme by the Government for a period of six months or till such date by which Rupees One lakh crore assets get purchased by banks,whichever is earlier.
  5. The scheme was launched as the NBFCs including HFCs have been under stress following the series of defaults by group companies of Infrastructure Leasing & Financial Services Ltd. (IL&FS).
  6. This stress on NBFCs was seen as a key reason for a slowdown in the economy.It has also caused reduced credit flow to small businesses and consumers. 
  7. However,this step is expected to provide liquidity to NBFCs and enable them to continue to play their role in meeting the financing requirements of productive sectors of economy.