IDBI Bank to host special purpose vehicle to support NBFCs
By Vaibhav Aggarwal
Jan 12, 2009
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The non-banking finance companies (NBFCs) are soon going to be facilitated with infrastructure financing once the Cabinet Committee on Economic Affairs (CCEA) gives a green signal to the proposal.

The CCEA is expected to soon give a nod to the proposal of setting up a new special purpose vehicle (SPV). This SPV would be floated by IDBI Bank that will offer loans to NBFCs at 11.5%. Further the NBFCs would extend this credit to the corporate borrowers at an interest rate of 13%

Presently the corporates are getting loans from NBFCs at interest rate ranging between 12% and 16%, depending on the risk associated with a particular project. An official with the finance ministry said, "We have shortlisted IDBI Bank to float the SPV. Our ministry has also moved a cabinet note and expects CCEA to give its nod to the proposal in the next meeting."

The SPV is expected to avail the refinance from RBI at 4% bank rate. As per the rules confirmed by the RBI and the finance ministry, SPV will charge NBFCs a 1.5% premium on interest and further the NBFCs would also be permitted to charge a premium of 1.5% thus taking the interest rate to 13%.

Moreover the SPV would also accept investment instrument such as certificate of deposits (CD) or commercial papers, or other corporate bonds of NBFCs and float its own bonds against them. Basically these are investment-grade papers against which corporates raise funds from the market.

RBI would subscribe to these bonds and provide the required amount to the SPV at bank rate plus 4%. The SPV would in turn extend this amount to meet the NBFCs requirements. Only those NBFCs that produce investment-grade papers would be provided the finance. The maximum amount limit raised by the SPV against these bonds is set at Rs 25, 000 crore.

The establishment of SPV was declared by the government as part of the second stimulus package with the aim to provide credit to the cash strapped NBFCs.

The second stimulus package has been announced the government on January 2nd in order to help the various ailing sectors of the economy.

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