India Approves Special Liquidity Scheme for NBFCs

Source: Regulation Asia Editors, Regulation Asia 2020-07-02

An SPV back by State Bank of India will buy investment-grade debt paper with residual maturity under three months to provide NBFCs and HFCs liquidity to settle existing debt.

India’s government has approved a new scheme that will provide liquidity to NBFCs (non-bank financial companies) and HFCs (housing finance companies) through a special purpose vehicle.

The move is aimed at preventing systemic risks in the financial sector.

To be eligible for funding under the scheme, NBFCs/HFCs should have a capital adequacy ratio of 15% and 12%, respectively, and an NPA (non-performing assets) ratio not higher than 6% – as of 31 March 2019 data.

Eligible NBFCs and HFCs should be also rated investment grade, have made a net profit in at least one of the last two financial years, and should not have been reported as special mention accounts (SMA-1 or SMA-2) by any bank for defaulting in the one year prior to 1 August 2018.

The SPV to operate the scheme has been established investment bank SBI Capital Markets, a unit of India’s largest bank, State Bank of India.

The SPV will purchase short-term debt paper from eligible NBFCs/HFCs, who “shall utilise the proceeds under this scheme solely for the purpose of extinguishing existing liabilities”. NBFCs are said to have about INR 650 billion (USD 8.6 billion) in commercial paper repayments due between July and September.

Investment-grade commercial paper and non-convertible debentures (NCDs) with a residual maturity less than three months qualify as eligible instruments.

The SPV will stop making fresh purchases after 30 September and recover all dues by 31 December, unless the scheme is modified.

It has not been revealed how much capital will be deployed into the SPV.

SPV

State Bank of India

NBFCs

HFCs

India Approves Special Liquidity Scheme for NBFCs

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