Special Liquidity Scheme for NBFCs and HFCs

A Special Liquidity Scheme is announced for Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs). This scheme was approved by Government of India, and is launched on July 1st,2020. The main objective if this scheme is to improve the liquidity status of NBFCs and HFCs.

Eligibility: 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. Housing Finance Companies that are registered under the National Housing Bank Act, 1987.

Key Points:

• As per this scheme, Special Purpose Vehicle (SPV) would be set up.
•  The SPV will issue securities, and Government of India will provide a full guarantee for these securities.
• These securities will be purchased by the Reserve Bank of India (RBI) only.
• The amount covered from the sale of these securities would be used by the SPV to acquire short-term debt of NBFCs/HFCs.
• It will remain open for 3 months for making subscriptions by the Trust.
• The period of lending by the Trust shall be for a period of up to 90 days
• Under this scheme the amount provided to NBFCs or HFCs, should be used to repay existing liabilities.
• The amount received cannot be used by the NBFCs or HFCs to expand their assets
• NBFCs would be enabled to get investment grades for bonds issued, under this scheme
• With this scheme, Overall liquidity measures in the economy would be intensified.
• Commercial papers (CPs) and Non-Convertible Debentures (NCDs) are the instruments used in this scheme.
• This scheme will be administered by Ministry of Finance.