The government has approved a special liquidity scheme under which all the eligible non-bank lenders will be provided short term liquidity. The short term liquidity scheme will be given funds under a special purpose vehicle (SPV) set up by SBI Capital Securities.
The Reserve Bank of India (RBI) stated in its guidelines that under special purpose vehicle (SPV) SBI Capital Securities will purchase the short term papers from all the eligible non-banking financial companies (NBFCs) and housing finance companies (HFCs). The funds raised under this short term liquidity scheme will only be utilized to pay existing liabilities.
The short term papers like commercial papers (CPs) and non-convertible debentures (NCDs) with lasting maturity of not more than three months and it should be rated as investment grade.
The special liquidity scheme will be available for any papers until 30th September 2020 after this date the facility will be ceased. The funds provided under a special purpose vehicle would recover all dues by 31st December 2020.
The central bank mentioned in its disclosure that non-banking finance companies (NBFCs) including microfinance institutions, except those registered as core investment companies and all housing finance companies (HFCs) that are registered under the National Housing Bank Act can opt the short term special liquidity scheme.
Another major eligibility to avail short term liquidity under special purpose vehicle (SPV), those non-banks net non-performing assets should not be more than 6 per cent as on 31st March 2020. Those companies should have made a net profit in the minimum one of the last two preceding financial years (201-18 and 2018-19).
All eligible non-banking financial companies (NBFCs) and housing finance companies (HFCs) must be rated as investment-grade by the SEBI (securities exchange board of India) registered rating agency.
The main purpose of approving special purpose vehicle (SPV) scheme by the government is to improve the liquidity position of non-banking finance companies and housing finance companies and to avoid any potential systemic risks to the financial sector.