Government Moves To Inject Liquidity To NBFCs, Issues One-Time Guarantee Scheme To PSBs For Buying High-Rated Assets Representative image (SAM PANTHAKY/AFP/Getty Images)

With the Non-Banking Finance Companies (NBFCs) and Housing Finance Companies (HFCs) facing a cash crunch, the government has issued a scheme to inject much needed liquidity into the sector.

As per the scheme, Public Sector Banks (PSBs) will be allowed to purchase pooled assets of financially sound NBFCs amounting to Rs 1 lakh crore helping NBFCs meet correct the asset-liability mismatches that they are facing. This will help avoid distress sales by the companies and allow for progress on new and on-going projects.

Meanwhile, the banking sector has had a tenth straight week of liquidity surplus, and PSBs will be allowed to buy such assets for a period of six months, or until Rs 1 lakh crore assets get purchased by banks.

The NBFCs or HFCs also have the option to buy back their assets after a specified period of 12 months as a repurchase transaction, on a right of first refusal basis.

A one-time guarantee will be provided to the banks by the government on the pooled assets will be valid for 24 months from the date of purchase and can be invoked if the interest and/or instalment of principal remains overdue for a period of more than 90 days.

For NBFC assets to be eligible under the scheme, they should be rated a minimum of 'AA' or equivalent at fair value. The NBFCs should have net NPAs less than 6 per cent and should’ve been profitable for at least the last two financial years.

The NBFCs are allowed to sell 20 per cent of their standard assets capped at Rs 5,000 crore. Additional sale by the NBFC will be considered on a pro rata basis.

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