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Central Government approves Guarantee Scheme for Corporate Debt (GSCD)- (Ministry of Finance ) (26 Jul 2023)

MANU/EAFF/0058/2023

Commercial

The Central Government has approved the 'Guarantee Scheme for Corporate Debt' (GSCD) for the purpose of providing guarantee cover against debt raised/ to be raised by Corporate Debt Market Development Fund (CDMDF).

1. Name of the Scheme/Fund

The Scheme shall be named as Guarantee Scheme for Corporate Debt (GSCD) and the Trust/ Fund to manage the scheme shall be named as Guarantee Fund for Corporate Debt (GFCD).

GFCD shall be a Trust Fund formed by Department of Economic Affairs (DEA), Ministry of Finance, Government of India and shall be managed by National Credit Guarantee Trustee Company Ltd. (NCGTC), a wholly owned company of the Department of Financial Services (DFS), Ministry of Finance, Government of India.

2. Purpose of the Scheme

To provide 100% guarantee cover against debt raised/to be raised by CDMDF, an Alternative Investment Fund (AIF) created/ to be created under relevant SEBI Regulations, for the purpose of investing in corporate debt securities at times of market dislocation with a view to stabilize the markets. The guarantee shall cover debt raised, along with interest accrued and other bank charges thereon, and shall not exceed Rs.30,000 crore. The framework for CDMDF has been detailed in Annexure.

3. Date of commencement

The scheme guidelines shall come into force from the date of issue of this Notification.

4. Duration of scheme

The Scheme would be initially for a period of 15 years from the initial closing date of CDMDF, extendable at the discretion of the DEA in consultation with SEBI.

5. Definitions

For the purposes of this Scheme -

(i) "Backstop Facility" refers to the institutional framework being created to enable purchase of investment grade debt securities, particularly during market dislocation.

(ii) "Corporate Debt Market Development Fund (CDMDF)" means an Alternative Investment Fund (AIF) created/ to be created under SEBI Regulations, for the purpose of investing in corporate debt securities at times of market dislocation with a view to stabilize the markets.

(iii) "Corpus of CDMDF" means total funds committed at CDMDF;

(iv) "Framework" means the framework of CDMDF

(v) "Investment Grade Debt Securities" means debt securities with minimum rating of ―BBB- (triple B minus)‖ or equivalent as assessed by a credit rating agency registered with SEBI at the time of making investments.

(vi) "Member Lending Institutions (MLIs)" means lending institutions including Scheduled Commercial Banks/ other financial intermediary approved by GFCD.

(vii) "Tenure of Guarantee Cover" means the maximum period of guarantee cover;

(viii) "Market Dislocation" refers to the stress in the financial sector of the economy and shall be decided by the SEBI Board as per the Framework.

6. Eligible Unitholders of CDMDF and their contribution

Eligible members of CDMDF shall be:

(i) Debt-oriented Mutual Fund schemes, as may be specified by SEBI from time to time. These schemes shall contribute 25 bps of their Assets Under Management (AUM) and provide additional incremental contributions as their AUM increases on half-yearly basis.

(ii) Existing/ new Asset Management Companies (AMCs) of specified debt-oriented MF schemes shall make a one-time contribution equivalent to 2 bps of their AUM.

The contributions made by the Debt-oriented Mutual Fund schemes and AMC thereof shall be held in the form of investment in units of CDMDF by the contributors.

7. Activities of CDMDF

Some basic features of the Framework are given hereunder:

(i) Activities of CDMDF shall be monitored by SEBI on regular basis;

(ii) In normal times, CDMDF shall deal only in liquid and low-risk debt instruments, using only its corpus;

(iii) In times of market dislocation, CDMDF shall be eligible to raise debt not exceeding 10 times of contribution to its corpus from banks or bond market or repo market, subject to maximum guarantee of Rs. 30,000 crore under the Scheme;

(iv) The corpus of CDMDF and debt so raised by CDMDF shall be utilized to purchase and hold eligible corporate debt securities of investment grade from the participating investors with residual maturity not exceeding 5 years;

(v) CDMDF will offload a large part of its holdings within a reasonable time of 3 months from the end of market dislocation period. However, the timeline may be extended with the approval of SEBI Board.

8. Guarantee Issue and Monitoring Mechanism

(i) The MLI, after due screening of the application of CDMDF, shall sanction the loan to CDMDF and enter the requisite details on NCGTC's portal designed for the said purpose.

(ii) A Guarantee Number, based on preliminary screening by the portal and approval by NCGTC, shall be auto generated indicating the availability of guarantee on the said loans.

(iii) Once the guarantee number is issued to MLI, the MLI shall enter the details of the loans disbursed to CDMDF on NCGTC's portal within two days of disbursement.

(iv) CDMDF shall arrange to forward details of utilization of the loans on NCGTC's portal on a daily basis.

(v) The authorized person of CDMDF shall enter the details of the sale of debt instruments on NCGTC's portal on the day of sale itself.

(vi) The guarantee against the drawl amount shall remain valid for the period of five years from the last day of market dislocation. However, guarantee shall be valid upto the date of claim in case of claim.

9. Guarantee Settlement Mechanism

(i) CDMDF shall enter the details of settlement made as per the waterfall mechanism explained in the framework along with a Statutory Auditor Certificate in this regard;

(ii) Based on the loss estimated, along with the Statutory Auditor Certificate certifying the loss incurred, the MLI shall submit claim on NCGTC's portal.

(iii) Based on the details at (i) & (ii) above, if any payout is made by GFCD at any stage, then NCGTC shall assess the same and arrange to pay the guaranteed amount to MLI in the next 60 days.

10. Guarantee Fee

GFCD shall charge guarantee fee at 0.5% p.a. of outstanding loans on daily pro-rata basis (i.e. for the period for which loans are raised) till a claim is lodged. This fee shall be paid by the MLIs. The demand advice for guarantee fees shall be auto generated and forwarded to the authorized officer of the MLIs on 1st day of each quarter for loans outstanding during the previous quarter. The MLIs shall recover this guarantee fee from CDMDF.

Tags : GUARANTEE SCHEME   CORPORATE DEBT   APPROVAL  

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