{"id":18726,"date":"2020-10-31T14:44:49","date_gmt":"2020-10-31T09:14:49","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=18726"},"modified":"2020-10-31T14:44:53","modified_gmt":"2020-10-31T09:14:53","slug":"special-liquidity-scheme-for-nbfcs-hfcs","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/special-liquidity-scheme-for-nbfcs-hfcs\/","title":{"rendered":"What are the Outcomes of Special Liquidity Scheme for NBFCs\/HFCs?"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The month of July 2020 came as a relief for\nthe NBFCs and HFCs as the government rolled out Special Liquidity Scheme that\nworth around Rs 30,000 crore. Although the said scheme adheres to immense\npotential, it failed to meet the expectation of the entities, smaller ones in\nparticular. In this write up you will come to know why the scheme of such\npotential gets failed to serve its purpose. But before we shed some light on\nthe outcome, let get familiar with its historical context.&nbsp;<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/special-liquidity-scheme-for-nbfcs-hfcs\/#What_was_the_Special_Liquidity_Scheme\" >What was the Special Liquidity Scheme?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/special-liquidity-scheme-for-nbfcs-hfcs\/#Limitation_of_Special_Liquidity_Scheme\" >Limitation of Special Liquidity Scheme<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/special-liquidity-scheme-for-nbfcs-hfcs\/#Outcomes_of_Special_Liquidity_Scheme\" >Outcomes of Special Liquidity Scheme<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/special-liquidity-scheme-for-nbfcs-hfcs\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_was_the_Special_Liquidity_Scheme\"><\/span>What was the Special Liquidity Scheme?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Special Liquidity Scheme was launched in the event when the majority of the <a href=\"https:\/\/corpbiz.io\/nbfc-registration\"><strong>NBFCs<\/strong><\/a> were seeking monetary leverage from the government to stabilize their financial standing. The scheme was underpinned by a Rs 30,000 crore relief package. RBI was the one who funded the scheme after subscribing to government-based special securities. The scheme adheres to a lot of positive vibes since it got the support of the country\u2019s leading apex bodies and also it was expected to improve the financial standing of the existing NBFCs and HFCs.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/regulations-governing-nbfcs-in-india-a-complete-overview\/\">Regulations governing NBFCs in India: A Complete Overview<\/a><\/mark><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Guidelines Related To Eligibility Criteria<\/h3>\n\n\n\n<p><strong><em>Special Liquidity Scheme enclosed some guidelines related to eligibility criteria drafted by the Reserve Bank of India, which are as follows:-<\/em><\/strong><\/p>\n\n\n\n<ul><li>NBFCs with investment-grade ratings were only allowed to access the scheme.<\/li><li>HFCs registered under the NHB Act 1987 have the access to the scheme.&nbsp;<\/li><li>The capital adequacy ratio of NBFC\/HFC should not be lower than 15 and 12 percent, respectively, as of 31st March 2019;<\/li><li>The Net NPA for NBFCs must not exceed the maximum limit i.e. 6 percent as of 31st March 2019;<\/li><li>Companies must adhere to profitability as far as their financial standing is concerned for the last two years.<\/li><li>They must remain outside the regime of SMA (Special Mention Accounts)-1 or SMA-2 for their borrowing in past one year prior 1st August 2018;&nbsp;<\/li><li>They are needed to meet the requirement of SPV (special purpose vehicle) for a suitable level of collateral from the entity.&nbsp;<\/li><\/ul>\n\n\n\n<p>So how did the scheme stack up against the\ncomplexities exist within the financial sector?&nbsp;<\/p>\n\n\n\n<p>Well, to be precise, the scheme failed to\nmeet the expectation of the industry. The following are the reasons why the\nSpecial Liquidity Scheme has failed to renders the desired outcomes.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Limitation_of_Special_Liquidity_Scheme\"><\/span>Limitation of Special Liquidity Scheme<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"580\" height=\"175\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/10\/image-124.png\" alt=\"Limitation of Special Liquidity Scheme\" class=\"wp-image-18727\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/10\/image-124.png 580w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/10\/image-124-300x91.png 300w\" sizes=\"(max-width: 580px) 100vw, 580px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Outcomes_of_Special_Liquidity_Scheme\"><\/span>Outcomes of Special Liquidity Scheme<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>There are lots of outcomes of Special Liquidity Scheme observed, which are as follows:-<\/em><\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Disbursal Negligence<\/h3>\n\n\n\n<p>As per the official data, the Special\nLiquidity Scheme has failed to disburse the allocated fund of the \u20b930,000\ncrores to the NBFCs in the given timeline. Only \u20b97,227 crores of funds have\nbeen routed to the potential credit seekers at the end of the scheme. Till\nSeptember 30, thirty-nine proposals, including \u20b911,120 crores, was approved.\nOut of this approved amount, \u20b97,227 has been credited, whereas Rs 182 crore\nends up worthless. Furthermore, the remaining amount i.e. \u20b93,707 crores have\nlapsed.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Smaller ones did not receive as Expected<\/h3>\n\n\n\n<p>Since the scheme rolled out to perish the\nexisting liabilities only, the companies didn\u2019t see the point in accessing the\nscheme as they are looking for funds to extend their lending capabilities. The\nliquidity support under the scheme largely benefitted the bigger NBFCS,\nwhereas, the smaller ones did not receive the expected financial backing.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Not Satisfying the Requirements<\/h3>\n\n\n\n<p>Although the government was keen to help\nthe industry, the way his scheme was drafted and deployed, is not satisfying\nthe requirements of the NBFC ecosystem from a practical viewpoint. This scheme\nwas meant to cater to the requirement of the NBFCs dealing with severe\nliabilities issues.&nbsp;<\/p>\n\n\n\n<p>But still, there is a sign of hope as the\ngovernment is planning to allocate the remaining funds to the SIDBI or NABARD.\nThese bodies will soon roll out the direct liquidity support to newly\nestablished NBFCs via term loans. The disbursement of such funds will not take\nthe credit rating into the account. According to the expert\u2019s speculation, this\nmight not be a game-changer, but at least it would lower than turbulence for\nfiscal needs to some extent.&nbsp;<\/p>\n\n\n\n<p>In the past couple of months, NBFCs have\nbeen catering to their payment obligation in a good way, yet their balance\nsheet says otherwise. These entities were waiting for a stable remedy to\nrebalance their asset-liability mismatch. They would instead opt for fresh\nborrowings available for longer terms to serve the purpose of lending. The\ncurrent situation demands the debt market to starts rolling out funds for\ncredit seekers without credit or risk aversion.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Poor Structuring of Scheme<\/h3>\n\n\n\n<p>There is no denying that the Special Liquidity Scheme lacks everything that newer establishments wished for. After all, there is no point in accessing a liquidity scheme that doesn\u2019t resolve the core problem. Henceforth, the center must look for an alternative by averting the current methodology for structuring the scheme. They must extract the possible outcomes via a forecasting model to maximize the end-user benefits. The way this scheme performed has left a negative impression on the government.&nbsp; <\/p>\n\n\n\n<p>Taking insight from stakeholders would help\nthe government to outline a better scheme. Any tweak after the deployment could be a tedious\nerrand for the government. So it\u2019s all boil down preliminarily preparation. The\nproblem with the said scheme was that it was only catering to a narrow range of\ncredit seeker. And this is why the significant portion of the scheme\u2019s fund\nremained untouched.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Special Liquidity Scheme was one of a kind that renders no benefit to small and medium NBFCs. It\u2019s strange how the scheme with such a sheer volume of the fund went unproductive. The <em><strong>government<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Government\"><em><strong>[1]<\/strong><\/em><\/a><\/sup> and finance ministry needs to work from the ground up to launch a new and better scheme that tackles the core problems instead of unnecessary matters.&nbsp;<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/challenges-encountered-by-nbfcs-their-remedies\/\">What are the Major Challenges Encountered by NBFCs &amp; Their Remedies?<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The month of July 2020 came as a relief for the NBFCs and HFCs as the government rolled out Special Liquidity Scheme that worth around Rs 30,000 crore. Although the said scheme adheres to immense potential, it failed to meet the expectation of the entities, smaller ones in particular. In this write up you will [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":18749,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[91],"tags":[1165],"acf":{"service_id":"8"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":3414,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/18726"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=18726"}],"version-history":[{"count":5,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/18726\/revisions"}],"predecessor-version":[{"id":18750,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/18726\/revisions\/18750"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/18749"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=18726"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=18726"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=18726"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}