The Centre has approved a special scheme to improve the liquidity position of Non-Banking Finance Companies (NBFCs)/Housing Finance Companies (HFCs) through a Special Purpose Vehicle (SPV) to avoid any potential systemic risks to the financial sector.
In this regard, SBICAP which is a subsidiary of the State Bank of India, has set up SLS Trust, a SPV. The SPV will purchase the short-term papers from eligible NBFCs/HFCs, which will have to utilise the proceeds solely for the purpose of extinguishing existing liabilities, the Reserve Bank of India (RBI) said.
The RBI, however, did not mention the quantum of short-term papers that the SPV will purchase.
The short-term instruments that the SPV will buy will be Commercial Papers and Non-Convertible Debentures 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.It would recover all dues by December 31, 2020; or as may be modified subsequently under the scheme.
To be eligible under the scheme, NBFCs, including microfinance institutions, should meet conditions relating to capital to risk-weighted assets ratio (CRAR)/ capital adequacy ratio (CAR) and net non-performing assets (NNPAs).
The CRAR/CAR of NBFCs/ HFCs should not be below the regulatory minimum of 15 per cent and 12 per cent, respectively. Their NNPAs should not be more than 6 per cent as on March 31, 2019;
Further, the NBFCs/ HFCs should have made net profit in at least one of the last two preceding financial years (2017-18 and 2018-19); They should not have been reported under SMA-1 (principal or interest payment overdue between 31and 60 days) or SMA-2 (principal or interest payment overdue between 61and 90 days) category by any bank for their borrowings during last one year prior to August 1, 2018;
The central bank said the NBFCs/HFCs 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.