India extended the Partial Credit Guarantee Scheme by relaxing the criteria and allowing state-owned lenders more time to purchase liabilities of shadow banks.
Under the Rs 45,000-crore partial credit guarantee scheme, announced as a part of the Aatmanirbhar Bharat package, additional three months would be given to banks to purchase the portfolio of non-banking financial companies, according to a statement from the Ministry of Finance.
The scheme was launched to provide liquidity support to non-bank, housing finance and microfinance lenders, with public sector banks purchasing their portfolio of bonds and commercial papers. The government will provide guarantee for the first 20% of the loss.
Public sector banks have so far bought Rs 21,262 crore worth of bonds and commercial paper of shadow banks. That included AA/AA- rated paper issued by 28 entities, and below AA- issued by 62 entities, according to the statement.
By November, at the end of six months after the launch of the scheme, the portfolio of bond holdings will be finalised for the 20% government guarantee to come into effect, the statement said. The scheme has been “extended with greater flexibility to respond to emerging demands”.
As per the criteria of the scheme , banks could purchase bonds and commercial paper rated AA/AA- up to 25% of the total portfolio, or up to Rs 11,250 crore. This limit has now been extended to 50% as the maximum limit to buy such higher rated bonds has already been reached, the statement said.
The limit to purchase high-rated bonds is being increased as the appetite for lower-rated bonds has neared saturation, the statement said. The average ticket size of lower-rated bonds is significantly lower than that of higher-rated bonds, it said.
Raman Aggarwal, a director at Paisalo Digital, a non-bank lender, said the government should expand the scope of the scheme to extend the guarantee cover to the term loans taken by small and medium NBFCs from banks and financial institutions. The major source of fundraising for these NBFCs is through term loans and not issuance of bonds, he said. Credit ratings should not be an eligibility criteria to avail the scheme, he said.
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