Home >News >India >NBFCs request FM for changes to liquidity schemes

MUMBAI : Non-bank lenders have requested finance minister Nirmala Sitharaman to rework the contours of the special liquidity schemes in the 20 trillion economic package.

In a letter sent to the finance minister on Wednesday, Finance Industry Development Council (FIDC), the representative body of non-banking finance companies (NBFCs), sought changes to the three liquidity schemes— 30,000 crore liquidity support scheme, 45,000 crore partial credit guarantee (PCG) scheme and 3 trillion guaranteed loans for micro, small and medium enterprises (MSMEs).

NBFCs, which were expecting liquidity support for three years, were disappointed by the three-month duration of the 30,000 crore special liquidity scheme. “The scheme for liquidity support of 30,000 crore is for a period of only three months and as such cannot be utilized for any on-lending purposes to MSMEs. It can only provide relief to existing holders of short-term NBFC debt instruments to sell off their holding and may in fact result in no additional cash flow to NBFCs. It may not have the desired effect of encouraging NBFCs to lend to the MSME sector. Any NBFC availing of funds under this scheme may in fact, end up in disturbing its asset-liability matching," the FIDC letter said. The industry has called for extending the tenure of the scheme to three years.

As per the details available, the liquidity scheme will be implemented through a special purpose vehicle (SPV) set up under a public sector bank. The SPV will manage a stressed asset fund, which will issue securities guaranteed by the government and will be purchased by the Reserve Bank of India. The proceeds from the sale of these securities will be used by the SPV to acquire short-term debt of NBFCs and housing finance companies (HFCs).

FIDC has also sought an extension of tenure of the instruments covered under the PCG scheme to three years. Under the PCG scheme, the government will provide first loss of up to 20% to public sector banks on purchase of bonds or commercial papers with rating of AA and below issued by NBFCs, HFCs and microfinance institutions.

After releasing some of the details on Wednesday, the government issued FAQs on the scheme on Thursday. According to this, the government will provide a guarantee worth 10,000 crore including for purchase of pooled assets and for bonds/commercial papers. The government had initially said the scheme will result in liquidity worth 45,000 crore to the NBFC sector.

FIDC has also requested 20% of the 3 trillion emergency credit line guarantee scheme for MSMEs to be made available for NBFCs.

“This would ensure that the weaker profiles of MSMEs which are mainly catered to by NBFCs (including small road transport operators, contractors, small manufacturing units and marginal farmers) also are able to get additional funds through this initiative. This would provide grounds for a very inclusive guarantee scheme where all deserving MSMEs would be able to benefit," said FIDC in its letter.

NBFCs have been facing a liquidity shortage since Infrastructure Leasing and Financial Services Ltd payment default in 2018. After the covid-19 outbreak, lenders began investing only in the papers of high-rated NBFCs.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Edit Profile
My ReadsRedeem a Gift CardLogout