InvestorQ : Is it true that the government is planning to disburse nearly Rs.25,000 crore to the NBFCs and how will it be done?
Priyanka N made post

Is it true that the government is planning to disburse nearly Rs.25,000 crore to the NBFCs and how will it be done?

NISHA Nayak answered.
2 years ago

You are right; this disbursal will be done by banks to the NBFCs via the PCG scheme which was announced in the last budget. The government has set an aggressive target for disbursing at least Rs 25,000 crore under the Partial Credit Guarantee (PCG) scheme in order to ease the liquidity position of non-banking finance companies. The idea of this announcement in the last budget was to give some breathing space to NBFCs where rthe problem pertained to liquidity issues and not to solvency issues. You would recollect that the PCG was proposed in the Union Budget 2019-20 and came into effect from August 2019. Although the facility elicited limited response from banks and NBFCs due to a lack of clarity, most of the banks and NBFCs are quite positive on the instrument as a short term liquidity provider.

Public sector banks, mandated for the PCG plan, disbursed Rs 10,000 crore in the December quarter, most of which took place in the last two weeks of the year, according to an industry estimate. This should bring the total disbursal figure to about Rs 35,000 crore by March-end. According to experts in the industry, the demand for liquidity is likely to rise as the quantum may double in March quarter. In fact, PSU banks are leading the way and showing interest to do such deals after finance ministry relaxed norms in December of 2019. PCG scheme has been helpful to address the liquidity concerns faced by NBFCs who are standing on their own and building independent retail franchises. Of course, this facility is not meant for NBFCs with solvency issues.

The liquidity window is available until 30th June 2020 this year within which time the NBFCs can sell the assets pool worth Rs.1,00,000 crore to banks via this window. Smaller NBFCs pleaded with the government citing their lower-rated loan assets, which likely moved the government to change rating grade of asset pools under PCG. The programme gained more traction after December when the government cut the benchmark rating grade by a notch to BBB+ from AA earlier. Apart from partial credit guarantee, securitisation and co-origination models have helped the sector to continue the momentum of growth. In short, this is a facility with a huge potential and the onus is on the banks and the NBFCs to make the best of this facility to get over temporary cash liquidity shortages.