On November 2, 2018, the Reserve Bank of India (“RBI”) issued a notification pertaining to Partial Credit Enhancement to Bonds Issued by Non-Banking Financial Companies and Housing Finance Companies (“PCE Notification”).
The PCE Notification permits banks to provide partial credit enhancement (“PCE”) to bonds issued by the systemically important non-deposit taking non-banking financial companies (“NBFC-ND-SIs”) registered with RBI and Housing Finance Companies (“HFCs”) registered with National Housing Bank, subject to the following conditions:
(a) The tenor of such bonds issued by NBFC-ND-SIs/HFCs shall not be less than 3 (three) years;
(b) The proceeds from such bonds shall only be utilized for refinancing the existing debt of the NBFC-ND-SIs/HFCs;
(c) The exposure of a bank by way of PCEs to bonds issued by each such NBFCND-SI/HFC shall be restricted to 1% (one percent) of capital funds of the bank within the extant single/group borrower exposure limits; and
(d) The exposure of banks to NBFC-ND-SIs/HFCs by way of PCEs shall be within the aggregate PCE exposure limit of 20% (twenty percent).
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