Banks approve bonds, CPs worth over Rs 14,000 crore issued by NBFCs

About 46 per cent of this sum for purchase by public sector banks is for bonds or CPs rated below 'AA'

State-owned banks have given the green signal to buy bonds and commercial papers (CPs) worth Rs 14,667 crore from non-banking financial companies (NBFCs) under the revamped partial credit guarantee scheme.

About 46 per cent of the total Rs 14,667 crore approved for purchase by public sector banks (PSBs) from 67 NBFCs till July 10, that is a sum of Rs 6,845 crore, is for bonds or CPs rated below ‘AA’. A finance ministry statement said on Wednesday that this meant that the scheme has helped in providing liquidity support to NBFCs with lower-rated bonds.

Most of the assistance was given to NBFCs belonging to the southern and western parts of the country which accounted for 70 per cent of the total amount of bond purchases.

In May, the government had approved an extended partial credit guarantee scheme, which was in place since August 2019, to compensate for the first 20 per cent of the losses of PSBs on purchase of bonds or CPs with a rating of AA and below (including unrated paper with maturity of up to one year) issued by NBFCs.

The finance ministry said that the banks are further negotiating with NBFCs to purchase bonds and CPs worth Rs 6,125 crore, majority of which (Rs 5,550 crore) is for lower-rated papers.

The guarantee is available both for buying pooled assets of NBFCs rated BBB+ and above, and for buying bonds and commercial papers of NBFCs rated AA and below. The sovereign guarantee will be for one time and will remain open for banks to avail till 31 March, 2021.