The ministry launched this scheme on Wednesday, through a Special Purpose Vehicle(SPV) in the form of SLS Trust set up by SBI Capital Markets Limited (SBICAP).
RBI said in the notification said, "The Government of India has approved a scheme to improve the liquidity position of NBFCs/HFCs through a Special Purpose Vehicle (SPV) to avoid any potential systemic risks to the financial sector."
RBI further said, to be eligible under the Scheme, the following conditions should be met:
- NBFCs including Microfinance Institutions that are registered with the RBI under the Reserve Bank of India Act, 1934, excluding those registered as Core Investment Companies;
- Housing Finance Companies that are registered under the National Housing Bank Act, 1987;
- CRAR/CAR of NBFCs/HFCs should not be below the regulatory minimum, i.e., 15% and 12% respectively as on March 31, 2019;
- The net non-performing assets should not be more than 6% as on March 31, 2019;
- They should have made a net profit in at least one of the last two preceding financial years (i.e. 2017-18 and 2018-19);
- They should not have been reported under the SMA-1 or SMA-2 category by any bank for their borrowings during last one year before August 01, 2018;
- They should be rated investment grade by a SEBI registered rating agency;
- They should comply with the requirement of the SPV for an appropriate level of collateral from the entity, which, however, would be optional and to be decided by the SPV.
According to the Finance Ministry, the period of lending (CPs/NCDs of NBFCs/HFCs for the short duration of up to 90 days) by the Trust shall be for a period of up to 90 days. The financing would be used by these companies only to repay existing liabilities and not to expand assets. Further, those market participants who are looking to exit their standard investments with a residual maturity of 90 days may also approach the SLS Trust.
However, the ministry reiterates that the total amount of such securities issued outstanding shall not exceed Rs30,000cr at any point in time.
Meanwhile, RBI added the instruments will be CPs and NCDs with a residual maturity of not more than three months and rated as investment grade. The facility will not be available for any paper issued after September 30, 2020, and the SPV would cease to make fresh purchases after September 30, 2020, and would recover all dues by December 31, 2020; or as may be modified subsequently under the scheme.
RBI explains that SPV will purchase the short-term papers from eligible NBFCs/HFCs, who shall utilise the proceeds under this scheme solely to extinguish existing liabilities.
NBFC and HFC stocks were trading in positive on Sensex. The BSE Finance index was performing at 5,095.22 up by 0.53% at around 11.03 am. Top gainers on the index were GIC Housing Finance, Reliance Capital, DHFL, Reliance Home, PFS, JM Financial and Indiabulls Housing Finance.