GoI approved special liquidity scheme for NBFCs and HFCs through SBICAP as SPV

On July 1, 2020, the Government of India (GoI) has approved a scheme for improving the short-term liquidity position of non-banking finance companies (NBFCs)/housing finance companies (HFCs) through a Special Purpose Vehicle (SPV) in the form of Special Liquidity Scheme (SLS) Trust set up by SBI Capital Markets Limited (SBICAP), a subsidiary of the State Bank of India (SBI). Means, SBICAP will manage this operation.

• This SLS of Rs. 30,000 crore was announced by Union Minister for Finance & Corporate Affairs Smt Nirmala Sitharaman on 13th March 2020.
• It should be noted that the finances provided to the NFBCs/HFCs under this scheme should be used to repay existing liabilities and not to expand assets.

Key Points:

Period of scheme: The Scheme will remain open for 3 months for making subscriptions by the Trust i.e. till September 30, 2020. 

Period of lending: The period of lending by the Trust shall be for a period of upto 90 days. 

Instruments used in this scheme: Commercial papers (CPs) and Non-Convertible Debentures (NCDs).

Eligibility:

Any NBFC including Microfinance Institutions registered with RBI under the Reserve Bank of India Act, 1934 (excluding those registered as Core Investment Companies) and any HFC registered with the National Housing Bank (NHB) under the National Housing Bank Act, 1987which is complying with the following broad conditions will be eligible to raise funding:

• Capital to Risk (Weighted) Assets Ratio (CRAR)/ Capital adequacy Ratio (CAR) of NBFCs/HFCs should not be below the regulatory minimum, i.e., 15% and 12% respectively as on March 31, 2019.
• Net Non-performing asset (NPA) is less than 6% as on 31.03.2019.
• Net profit in at least one of the two preceding financial years (i.e. 2017-18 and 2018-19)
• Rated as investment grade by a rating agency
• Not reported under SMA (Special Mention Accounts)-1 or SMA-2 category by any bank for their borrowing during the period one year prior to 01.08.2018.

How will this scheme work?

RBI will provide funds for the Scheme by subscribing to government guaranteed special securities issued by the Trust. GoI will provide an unconditional and irrevocable guarantee to the special securities issued by the Trust. 

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About Reserve Bank of India (RBI):
Headquarters– Mumbai, Maharashtra
Formation– 1 April 1935
Governor– Shaktikanta Das
Deputy Governors– 4 (Bibhu Prasad Kanungo, Mahesh Kumar Jain, Michael Debabrata Patra, one is yet to be appointed).