Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research
The FM's announcements today promptly follows the PM's announcements yesterday on an overall stimulus package of Rs. 20 lakh Cr to repair, revive and reform the Indian economy post the Covid crisis. One of the key components of the package has clearly been for the MSMEs, a segment whose business sustainability has been clearly impacted by the lockdown. The collateral free loans to small businesses up to an aggregate amount of Rs. 3 lakh Cr will be completely guaranteed by the government and importantly, have a longer tenor of 4 years with a moratorium in the first year. Such an emergency credit line will go a long way to fund the working capital required to restart the MSME's operations, protect against any job losses and also address the challenge of credit aversion being seen in lenders. Further, a provision for infusion of funds through equity or subordinated debt has also been made to support stressed MSMEs through funds created for the purpose. Additionally, significant support is envisaged through the expansion of the MSME definition, disallowance of foreign companies in global procurement and temporary liquidity relief by the payment of EPF liabilities on behalf of the small businesses.
Given the liquidity challenges in NBFCs and MFIs, the special liquidity scheme for Rs. 30,000 Cr which will invest in investment grade papers of NBFCs/HFC/MFIs backed by a government guarantee is a big positive. This has been further supplemented by the second version of the Partial Credit Guarantee (PCG) Scheme which was adopted last year to facilitate securitisation transaction. Under the PCG mechanism, Rs. 45,000 Cr can be invested in NBFC papers with a 20% first loss absorption by the Government. While the already announced TLTRO and the refinance programmes for the sector were being constrained due to the credit concerns of banks, these measures will address the latter concern and more effectively resolve the immediate liquidity problems in the NBFC and the MFI sector, enabling them to revive lending to MSMEs and self-employed individuals.
Infrastructure:The stimulus package also includes a relief for the infrastructure sector. The one-time liquidity support of Rs. 90,000 Cr for the distribution companies is critical since customer payments are currently delayed which has led to the transmission of liquidity stress to the power generation companies. In the current disruptive scenario where resumption of project execution work may pose challenges, an extension of all construction work up to 6 months without any penalty will also come as a relief to the construction, EPC and real estate companies."