Partial Guarantee Scheme
- 14 Aug 2019
- 2 min read
Recently, the government has issued guidelines on operationalising the Rs. 1 lakh crore Partial Guarantee Scheme to address liquidity crisis in Non-Banking Financial Companies (NBFC).
- Under the scheme Public Sector Banks can purchase securities (minimum rating of ‘AA’) of financially-sound non-banking finance companies.
- The objective is to address temporary asset-liability mismatches of otherwise solvent NBFCs/Housing finance companies (HFCs) without having to resort to distress sale of their assets to meet their commitments.
- NBFCs/HFC came under stress due to the recent IL&FS crisis.
- The government will provide a one-time, six months’ partial credit guarantee to public sector banks for first loss of up to 10%.
- Also, these NBFCs/HFCs are mandated that the CRAR (capital to risk weighted assets ratio) shall not go below the regulatory minimum while exercising of the option to buy back the assets.
Capital Adequacy Ratio (CAR)
- The CAR is a measure of a bank's available capital expressed as a percentage of a bank's risk-weighted credit exposures.
- The Capital Adequacy Ratio, also known as capital-to-risk weighted assets ratio (CRAR), is used to protect depositors and promote the stability and efficiency of financial systems around the world.