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Finance Ministry permits State-owned NBFCs

Published on June 28, 2022
Current Context: In a recent meeting, the finance ministry has permitted state-owned NBFCs to issue a ‘Letter of Comfort (LOC)’ to banks for fund tie-up for infra projects.
Finance Ministry permits State-owned NBFCs
  • This decision has been taken because CPSE-NBFCs are important players in the infrastructure sector.
  • Earlier In March, the finance ministry had asked other ministries and departments not to issue a ‘Letter of Comfort’ to any hired entity to improve transparency in fiscal management.
  • NBFCs should be involved in the infrastructure sector and LOCs should be provided by banks only for opening letters of credit for the supply of goods and services by foreign suppliers.
  • Apart from that, the liability under this LOC should devolve on the government of India under no circumstances.
  • A letter of Comfort is a letter issued to a lending institution by a stakeholder of the company acknowledging the support of the attempt for financing asked by that company.

Question:

Q.1 Recently the Finance ministry has given permission to which of the following institutions for issuing a Letter of Comfort?
a. Public Sector banks
b. Private Sector banks
c. State Owned NBFCs
d. NABARD
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