The Government of India has extended the Partial Credit Guarantee Scheme (PCGS) 2.0, that was launched on 20th May 2020 as part of Aatmanirbhar Bharat Abhiyan, to provide Portfolio Guarantee for purchase of Bonds or Commercial Papers (CPs) with a rating of AA and below issued by the Non-Banking Financial Companies (NBFC’s), Housing Finance Corporations (HFC’s) and Microfinance Institution (MFI’s) by Public Sector Banks (PSBs), for further three months.

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Ministry of Finance said about the scheme, “It was envisaged to purchase Bonds/ CPs of Rs. 45,000 Crores under PCGS 2.0 of which banks have the maximum headroom permissible for purchase of Bonds/ CPs rated AA/AA- was 25% of the total portfolio i.e. Rs. 11,250 Crore.”

Special Liquidity Scheme (SLS) had separately announced by the Government which provides for the purchase of Commercial Papers (CPs) and Non-Convertible Debentures (NCDs) issued by NBFCs/HFCs with a residual maturity of up to 3 months.

According to the Partial Credit Guarantee Scheme 2.0, the Public Sector banks have already approved the purchase of Bonds/ CPs rated AA/AA- issued by 28 entities and Bonds/CPs rated below AA- issued by 62 entities, amounting to Rs. 21,262 Crores overall. And as per the Special Liquidity Scheme also proposals of Rs. 7,464 Crore has been approved for purchase to this date.

So keeping in view the progress made under these Schemes the Government has decided to modify PCGS 2.0 for purchase of Bonds/CPs as under:

  1. Additional 3 months will be granted to build up the portfolio and at the end of six months which will fall in November, the portfolio shall be formed based on actual amount disbursed, for the Guarantee to come into effect.
  2. At the portfolio level, AA and AA- investment sub-portfolio under the Scheme should not exceed 50% (instead of 25% stipulated earlier) of the total portfolio of Bonds/ CPs purchased by PSBs under the Scheme.

The Government is expecting that these new modifications will provide greater flexibility in the purchase of Bonds/CPs under PCGS 2.0 to the Public Sector Banks.

With Warm Regards,

CL Bureau.

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