Context

• The Union Cabinet, chaired by the Prime Minister has given its approval to the proposal of the Ministry of Finance to launch a new Special Liquidity Scheme for Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) to improve liquidity position of the NBFCs/HFCs.

Details of the Scheme:

• The Government has proposed a framework for addressing the liquidity constraints of Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) through a Special Liquidity Scheme.
• An SPV would be set up to manage a Stressed Asset Fund (SAF) whose special securities would be guaranteed by the Government of India and purchased by the Reserve Bank of India (RBI) only.
• The proceeds of sale of such securities would be used by the SPV to acquire short-term debt of NBFCs/HFCs.
• The Scheme will be administered by the Department of Financial Services, which will issue the detailed guidelines.

Benefits:

• It has been announced in the Budget Speech of 2020-21 that a mechanism would be devised to provide additional liquidity facility to NBFCs/HFCs over that provided through the PCGS.
• This facility would supplement the liquidity measures taken so far by the Government and RBI.
• The Scheme would benefit the real economy by augmenting the lending resources of NBFCs/HFCs/MFls.

Background:

• It has been announced in the Budget Speech of 2020-21 that a mechanism would be devised to provide additional liquidity facility to NBFCs/HFCs over that provided through the Partial Credit Guarantee Scheme (PCGS).
• There is an urgency to implement the above Budget announcement to strengthen financial stability on account of the emerging situation of Covid-19.

Source:PIB