Cabinet Decision Current Affairs - 2020
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Union Cabinet approved the ‘Partial Credit Guarantee Scheme’ that allows public sector banks (PSBs) to purchase high-rated pooled assets from financially sound non-banking finance companies (NBFCs) and housing finance companies (HFCs). However, the amount of overall guarantee has been limited to first loss of up to 10% of fair value of assets (FAV) being purchased by banks under the scheme or Rs.10,000 crore, whichever is lower, as agreed by department of economic affairs (DEA), Union Ministry of Finance.
About Partial Credit Guarantee Scheme
The proposed government guarantee scheme will help NBFCs and HFCs to resolve their temporary liquidity and would enable them to continue contributing towards credit creation or cash flow mismatch issues. It will also provide last mile lending to borrowers, which will spurr economic growth.
Scheme would cover NBFCs and HFCs that may have slipped into ‘SMA-0’ category during the 1 year period prior to 1 August 2018, and asset pools rated ‘BBB+ or higher’.
Scheme will provide liquidity to NBFCs and HFCs concerned for financing credit demand of economy, and would also protect financial system of country from any adverse contagion effect that may arise due to failure of such entities.
Window: The window for one-time partial credit guarantee offered by government will remain open till 30 June 30 or till such date by which Rs. 1 lakh crore assets get purchased by banks, or whichever is earlier. Union Finance Minister has been delegated the power to extend the validity of scheme by up to three months taking into account its progress.
Background: Earlier, in Union Budget 2019-20, the government had announced that for purchase of high-rated pooled assets of NBFCs, amounting to a total of Rs.1 lakh crore during current financial year, government will provide one time 6 months’ partial credit guarantee to PSBs for first loss up to 10%.
Tags: Cabinet Decision • Department of Economic Affairs • HFC • Housing Finance Companies • Ministry of Finance
Union Cabinet has approved certain amendments in Insolvency and Bankruptcy Code, 2016 (code), through Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019. The amendments aim to remove certain difficulties being faced during insolvency resolution process to realise objects of code, protect corporate debtors, prevent ill-thought-out triggering of bankruptcy proceedings and to further ease doing of business (ADB).
Proposal: Amendment Bill seeks to amend sections 5(12), 5(15), 7, 11, 14, 16(1), 21(2), 23(1), 29A, 227, 239, 240 of Insolvency and Bankruptcy Code, 2016 (Code) and insert new section 32A in it.
Significance of Amendments to IBC
It aims to remove bottlenecks, streamline Corporate Insolvency Resolution Process (CIRP) and protect last mile funding in order to boost investment in financially distressed sectors of country.
It introduces additional thresholds for Financial Creditors represented by an authorized representative due to large numbers in order to prevent insignificant triggering of CIRP.
It also ensures that substratum of business of corporate debtor is not lost, and it can continue as a going concern by clarifying that permits, licenses, clearances, concessions, etc. cannot be terminated or suspended or not renewed during moratorium period.
Moreover, changes to IBC could also lead to- ring-fencing of corporate debtor resolved under IBC in favour of a successful resolution applicant from criminal proceedings against offences committed by previous promoters or management.
Tags: Cabinet Decision • CIRP • Corporate Insolvency Resolution Process • Financial Creditors • Insolvency and Bankruptcy Code