The National Housing Bank (NHB) will infuse an additional Rs 10,000 crore into eligible housing finance companies (HFCs) in its financial year through June 2020 to shore up liquidity and improve flow of funds for affordable housing loans for individuals, the finance ministry said on Friday.
This infusion will be over and above what the NHB would provide to the HFCs through its two existing refinancing schemes.
Finance minister Nirmala Sitharaman will meet chiefs of public-sector and private banks on Monday to review the flow of credit to various key segments of the economy, including MSMEs, retail, auto, affordable housing and NBFCs.
Following the announcements in the Budget to ease liquidity woes, the RBI has initiated a number of steps for banks to avail additional liquidity of Rs 1.34 lakh crore.
"Now…the backstop guarantee to banks for NBFC portfolios taken over by them has become effective. Banks will be utilising this guarantee support as per the contours of the scheme," the ministry said in a statement.
Under the plan announced in the Budget, the government will offer a one-time six-month partial guarantee of Rs 1 lakh crore to public-sector banks (PSBs) for purchasing consolidated high-rated pooled assets of financially-sound NBFCs. This will cover their first loss of up to 10%.
"This would ease the liquidity stress in the NBFC sector and increase the access of these NBFCs to bank finance, and, in turn, enable them to continue to play their role in meeting the financing requirement of the productive sector of economy," the ministry said.
The government has also received a proposal from the RBI on draft modalities of the guarantee to operationalise the Budget announcement. The finance ministry has approved the modalities that would be set in motion by the RBI. "The department of financial services would put in place an oversight mechanism for the scheme," it added.
NBFCs, including HFCs, have been facing liquidity issues after one of the largest shadow banks in the country, IL&FS Group, defaulted on loan payment last year.
In October 2018, just after the IL&FS crisis flared up and concerns about the repayment ability of some HFCs, including DHFL and Indiabulls, started to depress market sentiments, the NHB had raised its refinancing target for 2018-19 (July-June) by 25% to Rs 30,000 crore from the initial aim of Rs 24,000 crore. Later, the target was again raised to Rs 50,000 crore after the RBI approval.