Banks will pay 0.25% for the government guarantee

MUMBAI: To obtain a government guarantee against defaults on bonds or loans they buy from finance companies, banks will pay the government a commission of 0.25% of the value of the portfolio. This commission, which must be paid in advance, will protect up to 20% of the bonds issued by the NBFC in their portfolio or 10% of the loan portfolio that the banks have purchased from the NBFC.
The government on Thursday released detailed guidelines on the credit guarantee system, which now extends from credit to bond investments. NBFC, which include housing finance companies and microfinance institutions which benefit from bank support under this mechanism must rework their asset-liability management to ensure that in three months their future flows of funds correspond to their outflows.
They must also ensure that their solvency ratio is not lower than what has been prescribed by the regulations.
The loans that NBFCs sell to banks must be at least six months old and if they are raising funds by issuing bonds, they must be rated AA or lower. The window for the one-time partial credit guarantee offered by the government will remain open until March 2021 or until guarantees of Rs 10,000 crore are provided by the government.
For the purchase of pooled assets, the government guarantee will be valid for 24 months from the date of purchase, while for the purchase of bonds, the guarantee will coincide with the term of the instruments.
To be eligible, the bond term at the time of purchase must be nine months or 18 months.

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