PSBs buy bonds, CPs worth Rs 14,667 cr by 67 NBFCs under credit scheme: FM

Public sector banks (PSBs) have purchased bonds and commercial papers worth Rs 14,667 crore issued by 67 NBFCs under the revamped Partial Credit Guarantee Scheme (PCGS), Finance Minister Nirmala Sitharaman said on Wednesday.

As part of the nearly Rs 21 trillion special economic package amid the Covid-19 crisis, Sitharaman announced Partial Credit Guarantee Scheme (PCGS) 2.0 worth Rs 45,000 crore for non-banking financial companies (NBFCs) and micro finance institutions (MFIs).

"As of 10 July 2020, under the extended PCGS, #PSBs have approved for purchase Bonds/Commercial Papers issued by 67 NBFCs amounting to Rs 14,667 crore, of which Rs 6,845 crore is for Bonds/CPs rated below AA, providing liquidity support to NBFCs with lower rated Bonds/CPs," Sitharaman said in a tweet.

The purchase of bonds/commercial papers of Rs 6,125 crore, including Rs 5,550 crore of bonds/commercial papers (CP) rated below AA, is currently under various stages of approval/at negotiation stage, she added.

"The Partial Credit Guarantee Scheme (PCGS) was revamped under the #AatmanirbharBharat Package to support the liability side of NBFCs by providing a 20 per cent portfolio guarantee to public sector banks for the purchase of Bonds/Commercial Papers rated AA and below issued by NBFCs," she said.

Taking the lead, 23 NBFCs from the southern region sold bonds and or CP worth Rs 5,710 crore. It was followed by the western region with 29 NBFCs issuing papers to the tune of Rs 4,540 crore as of July 10.

The Union Cabinet on May 20 approved the sovereign portfolio guarantee of up to 20 per cent of the first loss for purchase of Bonds or Commercial Papers with a rating of AA and below including unrated paper with original or initial maturity of up to one year issued by NBFCs/HFCs/MFIs by public sector banks through an extension of PCGS.

The Cabinet also extended the time period of the scheme from June 30, 2020, to March 31, 2021, for purchase of pooled assets of the distressed entities.

As per the modification, NBFCs/HFCs which have reported under Special Mention Account (SMA-1) category on technical reasons alone during the last one year period prior to August 1, 2018 will be eligible for benefit under the scheme.

Earlier NBFCs/HFCs reported as SMA-1 or SMA-2 during the specified period were ineligible.

The SMA-1 refers to those accounts where the principal or interest payment remains overdue between 31-60 days, while SMA-2 pertains to those where the overdue period is between 61-90 days.

Since NBFCs, HFCs and MFIs play a crucial role in sustaining consumption demand as well as capital formation in the small and medium segment, it is essential that they continue to get funding without disruption, and the extended PCGS is expected to systematically enable the same.