Special Liquidity Scheme for NBFCs & Housing Finance Companies

The Reserve Bank of India (‘RBI’) has, on July 1, 2020, prescribed the eligibility criteria for the special liquidity scheme (‘Liquidity Scheme’) announced by the Government of India with a view to improve the liquidity position of non-banking financial companies (‘NBFCs’) and housing finance companies (‘HFCs’) through a special purpose vehicle (‘SPV’).

NBFCs registered with the RBI (excluding core investment companies) and HFCs registered under the National Housing Bank Act, 1938 are eligible to participate in the Liquidity Scheme subject to compliance with certain thresholds, conditions and additional collateral requirements, as may be decided by the SPV. As per the Liquidity Scheme, SBICAP, which is a subsidiary of the State Bank of India, has set up an SPV by the name, SLS Trust (‘SLS Trust’) which will purchase short-term papers from eligible NBFCs or HFCs, proceeds from which can be used by such NBFCs and HFCs only towards extinguishing existing liabilities. The instruments will be commercial papers and non-convertible debentures with a residual maturity of three months and rated as investment grade. The Liquidity Scheme will be effective till September 30, 2020 and all dues will be recovered by December 31, 2020 (or as may be modified subsequently under the Liquidity Scheme).

Published In:Inter Alia - Quarterly Edition - September 2020 [ English
Date: September 30, 2020