Partial Credit Guarantee Scheme 

#GS2 #Governance #Schemes 

News : The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, has approved the Sovereign portfolio guarantee of up to 20% of first loss for purchase of Bonds or Commercial Papers (CPs) with a rating of AA and below (including unrated paper with original/ initial maturity of up to one year) issued by NBFCs/ MFCs/Micro Finance Institutions (MFIs) by Public Sector Banks (PSBs) through an extension of the Partial Credit Guarantee Scheme (PCGS). The Cabinet also approved modifications in the existing PCGS on purchase of pooled assets, help increasing its coverage. 

About PCGS 

  • The Union Government had issued the PCG Scheme in the Union Budget this year to provide a one-time partial credit guarantee to PSBs for purchase of pooled assets of financially sound NBFCs. 
  • It aims to address temporary asset liability mismatches of otherwise solvent NBFCs/HFCs without having to resort to distress sale of their assets for meeting their commitments. 
  • It allows PSBs to purchase pooled assets enabled by Government guarantee support under the Scheme to addressing temporary liquidity / cash flow mismatch issues of otherwise solvent NBFCs / HFCs. 
  • This pooling would allow NBFCs without them having to resort to distress sale of their assets for meeting their commitments. 
  • This will provide liquidity to the NBFC / HFC concerned for financing the credit demand of the economy, and also protect the financial system of the country from any adverse contagion effect that may arise due to the failure of such NBFCs / HFCs. 
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