Special liquidity scheme for NBFCs/HFCs

Reserve Bank of India (RBI) vide its notification dated 01 July 2020 approved a scheme to improve the liquidity position of NBFCs/HFCs through a Special Purpose Vehicle (SPV) to avoid any potential systemic risks to the financial sector.

To be eligible under the Scheme, the following conditions should be met:

  1. NBFCs including Microfinance Institutions that are registered with the RBI under the Reserve Bank of India Act, 1934, excluding those registered as Core Investment Companies;
  2. Housing Finance Companies that are registered under the National Housing Bank Act, 1987;
  3. CRAR/CAR of NBFCs/HFCs should not be below the regulatory minimum, i.e., 15% and 12% respectively as on 31 March 2019;
  4. The net non-performing assets should not be more than 6% as on 31 March 2019;
  5. They should have made net profit in at least one of the last two preceding financial years (i.e. 2017-18 and 2018-19);
  6. They 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;
  7. They should be rated investment grade by a SEBI registered rating agency;
  8. They should comply with the requirement of the SPV for an appropriate level of collateral from the entity, which, however, would be optional and to be decided by the SPV.

As per the Government decision, has set up a SPV (SLS Trust) to manage this operation. The SPV will purchase the short-term papers from eligible NBFCs/HFCs, who shall utilise the proceeds under this scheme solely for the purpose of extinguishing existing liabilities.

The instruments will be CPs and NCDs with a residual maturity of not more than three months and rated as investment grade. The 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.

The RBI Notification dated 01 July 2020 can be accessed here.

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