Guarantee Scheme for Corporate Debt (GSCD)

The Department of Economic Affairs, Ministry of Finance, Government of India, has notified the establishment of ‘Guarantee Scheme for Corporate Debt’ (GSCD) for the purpose of providing guarantee cover against debt to be raised by Corporate Debt Market Development Fund (CDMDF) which will act as a backstop in the corporate debt market, in times of market dislocation. The genesis of backstop facility was set forth as part of the Union Budget 2021-22 announcement, wherein the Central Government, with the aim to develop the corporate debt market in India announced :

“To instill confidence amongst the participants in the Corporate Bond Market during times of stress and to generally enhance secondary market liquidity, it is proposed to create a permanent institutional framework. The proposed body would purchase investment grade debt securities both in stressed and normal times and help in the development of the Bond market”.

The GSCD is envisaged to be managed by the Guarantee Fund for Corporate Debt (GFCD), a Trust Fund formed by DEA with a corpus of Rs 310 crore. The GFCD will 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. The Trust would provide guarantee cover for loans not exceeding Rs. 30,000 crore, to be raised by CDMDF during times of market dislocation. NCGTC will give the guarantee as a standing facility, initially for 15 years.

CDMDF has been notified as an Alternative Investment Fund (AIF) in the form of a Trust under SEBI (AIF) Regulations. It would purchase investment grade debt securities both in stressed and normal times and help in development of the bond market. The units of CDMDF shall be subscribed by Asset Management Companies (AMCs) of Mutual Funds (MFs) and “specified debt-oriented MF Schemes. In times of market dislocation, CDMDF shall purchase and hold eligible corporate debt securities from the participating investors (i.e., specified debt-oriented MF schemes to begin with) and sell as markets recover. The Scheme will act as a key enabler for facilitating liquidity in the corporate debt market and to respond quickly in times of market dislocation.

Backstop facility will function as an entity on standby and is envisaged to facilitate liquidity in the corporate bond market and to respond quickly to stress situations, in order to achieve the following :

To bring liquidity and stability to the Corporate Debt Market.
To address risk aversion during times of stress specially for securities rated below AAA.
To build confidence of market participants in the secondary market.
To create liquidity options for investors at large.

For further details, please refer :

SBI Funds

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