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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.

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