Govt okays partial credit guarantee scheme for PSBs
The Union Cabinet on Wednesday approved a partial credit guarantee scheme for public sector banks (PSBs) to purchase high-rated pooled assets from financially sound NBFCs and housing finance companies.
PSBs can purchase high-rated pooled assets from financially sound Non-Banking Financial Companies (NBFCs)/Housing Finance Companies (HFCs), with the amount of overall guarantee provided by government till the first loss of up to 10 per cent of fair value of assets being purchased by banks or Rs 10,000 crore, whichever is lower. Rohit Poddar, Joint Secretary, NAREDCO Maharashtra and Managing Director, Poddar Housing and Development Ltd on Partial Credit Guarantee Scheme announced by Ministry of Finance said, “It is a welcome move by the Ministry of Finance to spur growth in the stagnant markets across the sectors. The dearth of monetary inflow was the major inhibitor for the real estate sector. The proposed ‘Partial Credit Guarantee Scheme’ coupled with 135 bps rate cut by RBI will play as catalyst to mobilize the cash flow in the NBFCs and shadow banking system. It will further enable Housing Finance Companies in credit creation to resolve the tight liquidity condition that the real estate sector has been facing at large.”
Finance Minister Nirmala Sitharaman in the Budget speech for 2019-20 had announced that the government will provide one-time six months’ partial credit guarantee to PSBs for first loss of up to 10 per cent for purchase of high-rated pooled assets of financially sound NBFCs, amounting to a total of Rs 1 lakh crore during the current financial year. Ashok Mohanani, Chairman, EKTA World, Vice President, NAREDCO Maharashtra said, “This is definitely a positive move of the cabinet towards resolving the temporary liquidity or cash flow mismatch issues. This will identify and cater the need of the hour, and enable the liquidity in the banking system and thereby effecting the cash flow in the sector. Considering the importance of the real estate sector in the economy as it is expected to contribute 13% to the country’s GDP by 2025, the government is taking various measures to revive the sector. It will also spur economic growth by enabling them to continue contributing to credit creation and providing last mile lending to creditors.”
“I am sure this move will be a temporary breather to resolve the liquidity crunch among NBFCs and HFCs and hope this would be considered on fast-track mode. The government should also consider increasing the partial credit guarantee period up to 12 months, which will also give some time for the industry to gain some momentum” felt Sankey Prasad, Managing Director & Chairman, Colliers International India
The scheme was announced to address temporary liquidity/cash flow mismatch issues of otherwise solvent NBFCs/HFCs without them having to resort to distress sale of their assets for meeting their commitments. Dr. Niranjan Hiranandani, National President , NAREDCO; President-Designate, ASSOCHAM; and co-founder and MD, Hiranandani Group said, “The liquidity crisis which impacted the economy in general and real estate in particular, might get slightly mitigated as a result of the Union Cabinet approving the ‘Partial Credit Guarantee Scheme’ for purchase of high-rated pooled assets from financially sound NBFCs/HFCs by PSBs. Subject to the norms prescribed, as also the quantum allocated, the proposed Government Guarantee support and resultant pool buyouts should positively impact the economy as also real estate in the sense that it will help NBFCs/HFCs resolve their temporary liquidity and/or cash flow mismatch issues, and enable them to continue contributing to credit creation and providing lending to borrowers. This should provide some respite for the economy in general, and real estate in particular.”
The proposed government guarantee support and resultant pool buyouts will help address NBFCs/HFCs resolve their temporary liquidity or cash flow mismatch issues, and enable them to continue contributing to credit creation and providing last mile lending to borrowers, thereby spurring economic growth.