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Cabinet approves Partial Credit Guarantee Scheme to help NBFCs, HFCs with liquidity  |  December 12, 2019

Vandana Ramnani

The Union Cabinet on December 11 approved the Partial Credit Guarantee Scheme to help non-banking finance companies (NBFCs) and housing finance companies (HFCs) with liquidity and thereby to provide stimulus to the real estate sector and the economy at large by enhancing credit flow.


The proposed credit support and the resultant pool buyouts will help NBFCs and HFCs resolve their temporary liquidity or cash flow mismatch issues. It will also enable them to continue contributing to credit creation and providing last mile lending to borrowers, thereby spurring economic growth, experts said.


The real estate sector has welcomed the move.


“It is a welcome move by the Ministry of Finance to spur growth in the stagnant markets across the sectors. The dearth of monetary inflow was the major inhibitor for the real estate sector. The proposed Partial Credit Guarantee Scheme coupled with 135 bps rate cut by the RBI will act as a catalyst to mobilise the cash flow in the NBFCs and shadow banking system.


“It will further enable Housing Finance Companies in credit creation to resolve the tight liquidity condition that the real estate sector has been facing at large,” said Rohit Poddar, joint secretary, NAREDCO Maharashtra and managing director, Poddar Housing and Development Ltd.


The liquidity crisis which impacted the economy in general and the real estate in particular, might get slightly mitigated as a result of the Union Cabinet approving the Partial Credit Guarantee Scheme for purchase of high-rated pooled assets from financially sound NBFCs/HFCs by PSBs, said Niranjan Hiranandani, National President , NAREDCO, President-Designate, ASSOCHAM, and co-founder and MD, Hiranandani Group.


Subject to the norms prescribed, as also the quantum allocated, the proposed Government Guarantee support and resultant pool buyouts should positively impact the economy as also the real estate sector in the sense that it will help NBFCs/HFCs resolve their temporary liquidity and/or cash flow mismatch issues, and enable them to continue contributing to credit creation and providing lending to borrowers. This should provide some respite for the economy in general, and real estate in particular, he added.


Ashok Mohanani, chairman, EKTA World and vice president, NAREDCO Maharashtra, said that the move is the need of the hour and would enhance liquidity in the banking system, thereby effecting the cash flow in the sector. Considering the importance of the real estate sector in the economy as it is expected to contribute 13 percent to the country’s GDP by 2025, the government is taking various measures to revive the sector.


“It will also spur economic growth by enabling them to continue contributing to credit creation and providing last mile lending to creditors,” he said.


“The Union Cabinet’s move is aimed at providing relief to NBFCs /Housing Finance Companies (HFCs) and will play an important role in resolving the issues related to liquidity crunch and cash-flow mismatch issues, especially for financially solvent NBFC's. The move will provide liquidity to such companies and also protect the economy from any spiral effect that may arise due to the failure of such companies. The industry is hopeful that such measures will help in providing a stimulus to the RE sector and to the economy by enhancing credit flow,” said Anshuman Magazine, Chairman and CEO - India, South East Asia, Middle East & Africa at CBRE.