In order to purchase high-rated pooled assets from financially sound Non-banking financial companies (NBFCs) and housing finance companies (HFCs), the Union Cabinet has approved a partial credit guarantee scheme for public sector banks (PSBs). PSBs can purchase high-rated pooled assets from financially sound NBFCs/HFCs, with the amount of overall guarantee provided by government till the first loss of up to 10% of fair value of assets being purchased by banks or Rs 10,000 crore, whichever is lower.
Finance Minister Nirmala Sitharaman in the Budget speech for 2019-20 had announced that the government will provide one-time six months' partial credit guarantee to PSBs for first loss of up to 10% for purchase of high-rated pooled assets of financially sound NBFCs, amounting to a total of Rs 1 lakh crore during the current financial year.
The scheme was announced to address temporary liquidity/cash flow mismatch issues of otherwise solvent NBFCs/HFCs without them having to resort to distress sale of their assets for meeting their commitments. The scheme will cover NBFCs/HFCs that may have slipped into SMA-0 category during the one year period prior to August 1, 2018, and asset pools rated 'BBB+' or higher. SMA-0 accounts are the special mention accounts (SMA) against which the principal or interest or any other amount wholly or partially is overdue between 1-30 days.