Few takers for special liquidity scheme due to stringent eligibility rules

The use of liquidity facility remains low due to factors such as consolidation of business, stringent eligibility rules and short tenure

The Centre’s special liquidity scheme received getting muted response from small and medium finance companies due to factors such as consolidation of business, stringent eligibility rules, and short tenure. This, despite the non-banking companies facing a double whammy of cash shortage due to low collections and impending debt repayment.
 
This scheme, closed on September 30, sought to provide liquidity to the lenders for a period of three months. The corpus of the scheme was Rs 30,000 crore. According to the data released by the Centre, 39 proposals worth Rs 11,120 crore were approved under the scheme. Of this, Rs 7,227 crore has been disbursed whereas Rs 182 crore will not be availed. The remaining sanctions of Rs 3,707 crore have lapsed.
 
Under the scheme, investment had to be made in both primary and secondary market transactions in investment-grade debt papers of NBFCs, housing finance companies (HFCs) and microfinance institutions. And, all the debt papers bought through this special liquidity scheme would be guaranteed by the government.
 
SBICAP was assigned to set up a special purpose vehicle (SPV) to implement the scheme. The SPV was supposed to manage a stressed asset fund (SAF), which was meant to issue interest-bearing special securities guaranteed by the government to the RBI. With the proceeds of this issuance, the SAF was meant to buy bonds of NBFCs and HFCs with a residual maturity of three months.

 
Experts had earlier expressed apprehension on the scheme, especially due to the short tenure for which the funds were being made available. The sector was hoping that funds would be made available for at least 3 years. Smaller NBFCs mostly rely on bank funding and making the funds available through the issuance of debt would not serve the purpose, experts had said.
 
“The fact that not many NBFCs opted for funds under the special liquidity scheme indicates that short-term liquidity is adequate in the sector,” said Anil Gupta, vice-president and sector head (financial sector ratings) of ICRA.
 
Deo Shankar Tripathi, MD & CEO of Aadhar Housing Finance said only those who had severe liquidity problem opted for the scheme.
 
Raman Aggarwal, president of Delhi Hire Purchase & Leasing Cos Association, said the scheme was targeting the liability side of the NBFCs. “In order to repay your current liability, you create another liability. More importantly, the funding was mainly required for the asset side, not the liability side,” Aggarwal said.