New SPV to purchase short-term papers from these cos
MUMBAI: The government of India on Wednesday approved a scheme to improve the liquidity position of those NBFCs and HFCs that satisfy norms set on different parameters including capital adequacy ratio (CAR), profitability, and NPA.
RBI said the relief is established through a Special Purpose Vehicle (SPV) and is aimed at avoiding any potential systemic risks to the financial sector.
SBICAP to manage operation
As per the Government decision, SBICAP which is a subsidiary of the State Bank of India has set up a SPV (special liquidity scheme (SLS) Trust) to manage this operation. The SPV will purchase the short-term papers from eligible NBFCs/HFCs, who in turn can 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.
To be eligible under the scheme, RBI laid out the conditions:
- a) The Non-Banking Financial Companies (NBFCs), including Microfinance Institutions (MFIs) that are registered with the RBI, under the Reserve Bank of India Act, 1934, excluding those registered as Core Investment Companies
- b) Housing Finance Companies (HFCs) that are registered under the National Housing Bank Act, 1987
- c) CRAR/CAR of NBFCs/HFCs should not be below the regulatory minimum, i.e., 15 per cent and 12 per cent respectively as on March 31, 2019
- d) The net non-performing assets (net NPA) should not be more than 6 per cent as on March 31, 2019
- e) The respective companies should have made net profit in at least one of the last two preceding financial years (i.e. 2017-18 and 2018-19)
- f) 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 – meaning that they should not have any bank loans that are risky during the said period.
- g) They should be rated investment grade by a SEBI registered rating agency
- h) 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.