Over 50 NBFCs may get access to special liquidity
The special refinance facility for non-banking finance companies (NBFCs) is likely to be made available to more than 50 companies.
Sources close to the development said that the finance ministry and the Reserve Bank of India are finalising the list of potential beneficiaries and how the scheme will work.
“A large number of those eligible for the facility will be NBFCs promoted by large corporate houses, which were finding it tough to raise resources, forget the cost of funds,” said a source.
They added that the first priority is to ensure that the larger NBFCs, which could pose systemic risks, got access to the window.
The idea was to ensure that funds flowed to the NBFCs till the end of June and the amount came back to RBI by the end of September. “It is a temporary facility and if it is felt that there is a need to continue it, we will take a call later,” a source said.
According to the plan cleared by the Union Cabinet last week, IDBI Bank’s Stressed Asset Stabilisation Fund (SASF), which so far had the mandate to deal with the public sector banks’ sticky assets, will act as the special purpose vehicle through which up to Rs 25,000 crore will flow to NBFCs to meet their liquidity needs.
On their part, the finance companies will issue fresh commercial paper (CP) at the prevailing market rate of interest and pledge them with SASF. The SPV, which will get direct financing from RBI, can lend to the finance companies. It will, in turn, will pledge the CPs with RBI. The regulator for banks and NBFCs, will settle the accounts once the money is paid back by the finance companies to the SASF and it gets its dues.
The SPV would issue government guaranteed securities, subject to a total amount of securities not exceeding Rs 20,000 crore with an additional Rs 5,000 crore, if needed. CPs are used to raise funds for up to one year.
The central bank will issue guidelines for pricing and lending under the scheme, which is similar to the CP rediscounting mechanism of the US Federal Reserve.
With funds flowing to NBFCs, the companies are expected to reduce lending rates by 50 basis points or more. This, in turn, is expected to help a pick-up in flow of loans to sectors such as automobiles and housing, which have been affected partly due to the lack of loans for consumers.
The government and RBI were forced to come out with the new mechanism as banks were reluctant to lend to NBFCs after the global financial turmoil intensified.