Nabard to offer 18 months refinance to smaller NBFC, MFIs under special liquidity scheme

A four-fifth of the smaller microfinance firms will be eligible to get special refinance assistance through the Reserve Bank of India-created dedicated liquidity window. This would help them to bridge the cash flow mismatches they might have over the next 18 months.

The National Bank for Agriculture & Rural Development (Nabard), which received the Rs 5000-crore dedicated fund from RBI for making the refinance facility available down the line, has just drawn up the rules.

The additional special liquidity facility (ASLF) will be shared between smaller non-banking finance companies (NBFC) with asset size less than Rs 500 crore and NBFC-MFIs.

Nabard said that micro lenders with ratings three notches below the top grade would make the cut. For firms based in the NorthEast Region, the rating criteria is more relaxed to four notches below the top grade.

About 40-45 firms will fulfil the criteria, said P Satish, executive director of Sa-Dhan, a microfinance industry organisation. There are 56 NBFC-MFIs having less than Rs 500 crore assets under management.

“The current liquidity requirement of these MFIs is estimated between Rs 4,000 crore and Rs 5,000 crore for the rest of the financial year,” Satish said.

Nabard would extend refinance for 18 months, against RBI’s prescription of 12 months. The interest rate for the funds available under ASLF will be 300 basis points over repo rate with applicable risk premium. This will be for the first 12 months. The interest rate for the remaining six months would be at par with Nabard’s normal refinance rate.

The repo rate now stands at 4%. A basis point is one-hundredth of one percentage point.

NBFC-MFIs, which are in business of lending for at least three years with consistent record of making profit will be eligible for getting the assistance. They should have net non-performing assets below 4% as on March 31, 2020 and capital adequacy above15%, according to the guidelines.

“It is desirable for NBFC-MFIs to obtain a Code of Conduct Assessment report”, Nabard said, adding that it would support NBFCs in the form of term loans of 18 months from its own funds.

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