The government relaxes the norms of the partial credit guarantee scheme and extended the validity of the scheme by three months to November 19 to maintain liquidity for low-rated shadow lenders. It enabled various state-run banks to raise their AA and AA- investment sub-portfolio under this scheme through another of Rs 11,250 crore. The government said that AA-rated papers including unrated papers will be qualified for investment. This scheme will cover NFBCs, housing finance companies and micro-finance institutions.
The PCGS 2.0 covers borrowings, such as primary issuance of bonds or commercial papers of shadow lenders, wherein the government will take the first 20 per cent of loss. It will cover all NFBCs, housing finance companies and also micro-finance institutions. The ministry said the decisions were made, to keeping in view the progress under the scheme and the specified limit for AA/AA- rated bonds or CPs has been almost reached while the appetite for lower-rated bonds or CPs is around saturation limit considering their lower size ticket and also added that under the PCGS 2.0, PSBs have approved purchase of bonds and CPs (rated AA/AA-) issued by 28 entities and such papers rated below AA- issued by 62 entities valued at a total cost of Rs 21,262 crore.
The average ticket size of Bonds or CPs valued below AA- is comparatively lower than the average ticket size of Bonds or CPs rated AA/AA. Apart, under the special liquidity scheme of Rs 30,000 crore, proposals of Rs 7,464 crore have been approved. The Partial Credit Guarantee Scheme 2.0 was introduced as a part of the government’s Rs 21-lakh crore relief package in May. The government also added it had announced the special liquidity scheme for the purchase of CPs and non-convertible debentures issued by NBFCs and housing finance companies with a residual maturity of up to three months.
This could be extended for a period of up to 3 months, of a total value not more than Rs 30,000 crore. The risk disinclination of investors to MFI firms and low-rated NBFC has only escalated in recent months, which was return in the fact that banks only accepted half the money provided by the central bank under the first portion of the targeted long term repo operations 2.0. The present situation of Covid-19 crisis hit hard the economy; the decisions were aimed at helping NBFCs at this scenario. It tackles their liquidity mismatch and also enables them to lend and aid financing.