Special liquidity scheme for NBFCs/HFCs approved

Special liquidity scheme for NBFCs/HFCs approved

Part of: GS-Prelims and GS-III –  Economy

In News:

• Recently, the proposal to launch a new Special Liquidity Scheme for Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) was approved. 
• This shall improve liquidity position of the NBFCs/HFCs.

Key takeaways:

• A large public sector bank would set up a Special Purpose Vehicle (SPV) 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 SPV would issue securities as per requirement. 
• Total amount of securities should not exceed Rs. 30,000 crore.
• The Scheme will be administered by the Department of Financial Services.

Important value additions 

Non-Banking Financial Company

• It is a financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency. 
• The most important difference between non-banking financial companies and banks is that NBFCs don’t take demand deposits.  

Housing Finance Company 

• It is a company registered under the Companies Act, 1956. 
• It primarily transacts business of providing finance for housing, directly or indirectly.