Govt extends NBFC financing window by 3 months

The government has extended the Partial Credit Guarantee Scheme (PCGS) 2.0 by an additional three months in order to help public sector banks build up portfolio of bonds/ CPs issued by non-banking financial institutions. 

Under the extended guarantee, it has also been mandated that at the portfolio level, AA and AA- investment sub-portfolio under the scheme should not exceed 50 per cent (against the 25 per cent stipulated earlier) of the total portfolio of Rs45,000 crore of bonds/ CPs purchased by PSBs under the scheme.
At the end of six months, ie, by 19 November 2020, the portfolio shall be crystallised based on actual amount disbursed, for the guarantee to come into effect. The modifications are intended to provide greater flexibility to PSBs in purchasing bonds/CPs under PCGS 2.0.
Part of the government’s Aatmanirbhar Bharat Abhiyan, the Partial Credit Guarantee Scheme (PCGS) 2.0 was launched on 20 May 2020 to provide portfolio guarantee to public sector banks (PSBs) for purchase of bonds or commercial papers (CPs) with a rating of AA and below issued by NBFCs/HFCs/ MFIs. PCGS 2.0 had a provision for purchase of bonds/ CPs up to Rs45,000 crore, of which the maximum headroom permissible for purchase of bonds/CPs rated AA/AA- was 25 per cent of the total portfolio, ie, Rs11,250 crore. 
Separately, the government had announced a Special Liquidity Scheme for purchase of commercial papers (CPs) and non-convertible debentures (NCDs) issued by NBFCs/HFCs with a residual maturity of up to 3 months, which could be extended for a further period of up to 3 months, of a total value not exceeding Rs30,000 crore to be extended by the amount required as per need.
Under PCGS 2.0, PSBs have approved purchase of bonds/ CPs rated AA/AA- issued by 28 entities and bonds/CPs rated below AA- issued by 62 entities, amounting to Rs21,262 crore overall. The average ticket size of bonds/CPs rated below AA- is significantly lower than the average ticket size of bonds/CPs rated AA/AA-. Under SLS, proposals of Rs7,464 crore have been approved for purchase so far.