Govt mulls Rs 20,000 crore stimulus via trust fund

The government is considering a fresh stimulus of around Rs 20,000 crore for manufacturing companies and non-banking finance companies (NBFCs) routed through the Stressed Asset Stabilisation Fund (SASF) Trust that is currently mandated to deal with bad and doubtful debts of IDBI Bank.

Sources said the plan is to broaden the ambit of SASF from debt recovery to lending so that it can mobilise the funds backed by government guarantees. This was a practice followed till the start of the decade when development financial institutions, including IDBI, were dominant in the financial sector.

Sources close to the development said SASF could raise funds at 400 basis points above the repo rate, or the rate at which the Reserve Bank of India (RBI) lends to banks, which currently stands at 6.5 per cent.

Details of the scheme are being worked out, but sources indicated that one option was to access funds from banks and the RBI. In turn, SASF would settle dues with manufacturing companies that have defaulted or face repayment pressures.

“The move is aimed at bolstering the confidence of the banks, which are reluctant to take fresh exposures in the current economic environment owing to fears of defaults,” said a senior government official.

Another option is to provide support to NBFCs. Apart from a paucity of funds, NBFCs have complained that high costs impact their lending. "The guarantees will cover various debt instruments and may not be confined to bonds alone," said a source.

The SASF trust was created in 2004-05 as a special purpose vehicle to acquire Rs 9,000 crore worth of stressed assets of Industrial Development Bank of India (IDBI) when it merged with IDBI Bank, which resulted in its conversion from a development financial institution to a scheduled commercial bank. The one-time transaction was done against bonds issued by the government.