With a view to provide additional cash to non-banking financial companies (NBFCs) and housing finance companies (HFCs) in crisis, the government on Monday launched Partial Credit Guarantee Scheme (PCGS) by public sector banks to purchase their commercial papers and bonds. Has relaxed the rules. The government has also extended the period of Yajna by three months.
In view of the progress made under the scheme, the government has taken some steps. As far as the AA and AA-rated bonds and CPs of these financial institutions are concerned, the limit fixed for them has been almost achieved while the lower rated CP is not getting buyers. This is the reason why the government has now decided to improve PCGS 2.0. The Finance Ministry has said in a statement that additional time of three months has been given to improve the portfolio.
The guarantee will come into effect only after the end of six months i.e. on November 19, 2020, the portfolio will be actualized based on the actual amount disbursed. It states that the portfolio bonds and commercial papers of AA and AA-invested purchased under the scheme by the public sector banks under the scheme at the portfolio level should not exceed 50 percent of the total portfolio. Earlier this limit was set at 25 percent. The statement said that the reform is expected to give banks some flexibility in purchasing bonds and debt papers under PCGS 2.0.
The PCGS 2.0 scheme was announced on 20 May as part of the government’s Rs 20.97 lakh crore self-sufficient India package. It has a provision for guarantee on purchase of AA and below rated bonds and loan letters issued by NBFCs and HFCs, microfinance institutions by public sector banks. Under PCGS 2.0, the public sector banks together approved the purchase of AA and AA-rated bonds and loan letters issued by 28 institutions for a total of Rs 21,262 crore and AA-less rated bonds and loan letters issued by 62 institutions. Has given
In the government announcement, a provision was made to purchase 45,000 crore bonds and commercial papers under PCGS 2.0. It allowed 25 per cent portfolio for AA and AA-bonded bonds, up to Rs 11,250 crore. Apart from this, the government had also announced a separate special liquidity scheme. In this, for the remaining period of up to three months, which can be extended for three more months, a provision was made to purchase bonds and non-convertible debentures up to Rs 30,000 crore.