The Reserve Bank of India (RBI) on Wednesday said that State Bank of India’s SBICAP unit would set up a Special Purpose Vehicle (SPV) to assist NBFCs and HFCs to improve their liquidity following the Centre’s approval of a Special Liquidity Scheme (SLS) for the purpose.

The RBI also issued guidelines specifying the norms that would make non-banking financial companies (NBFCs) and housing finance companies (HFCs) eligible to avail funds under SLS.

NBFCs and HFCs looking to avail the funds should not have net non-performing assets of more than 6% as on March 31, 2019, and should have made a net profit in at least one of the last two preceding financial years (i.e. 2017-18 and 2018-19).

Besides, they should not have been reported under the SMA-1 or SMA-2 category by any bank for their borrowings during one year prior to August 1, 2018; and should be rated investment grade by a SEBI-registered rating agency.

Avoiding potential risks

The Centre had approved the SLS to ward off any potential systemic risks to the financial sector.

The RBI said the NBFCs, including microfinance institutions registered under the Reserve Bank of India Act, 1934, and excluding those registered as Core Investment Companies; and HFCs registered under the National Housing Bank Act, 1987, would be eligible.

The CRAR/CAR of NBFCs/HFCs must not be below the regulatory minimum, i.e., 15% and 12%, respectively, as on March 31, 2019, the banking regulator said, adding that applicant companies should comply with the SPV’s requirement for an appropriate level of collateral, which, however, would be optional.

The SPV will purchase short-term papers from eligible NBFCs/HFCs, who shall utilise the proceeds under the 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 said in a circular.

The eligible NBFCs/HFCs have been asked to approach the trust to avail the facility.