New measures mark shift to credit support from liquidity support, say NBFCs

The nearly-crippled non-banking lenders have welcomed financial package announced by the government Wednesday saying the new measures mark a major shift to credit support from the liquidity support so far offered which left out most of the players. The industry feels that the new credit support scheme along with the credit guarantee scheme will provide much-needed respite to them and help them manage their liquidity position and scale up their operations once the lockdown is lifted.

The shadow banking industry has been in lurch since the industry went into a crisis after sectoral leader IL&FS went belly up in September 2018 creating a crisis of confidence in them which used to control nearly a fifth of the credit system. Krishnan Sitaraman, a senior director at Crisil said, the steps mark a clear shift in extending credit support to these companies as against the liquidity support measures which we have seen in the past which helped only the large players.

The new credit guarantees for NBFCs/HFCs/MFIs come in two parts -- a full government guarantee scheme worth Rs 30,000 crore; and a partial government guarantee scheme worth Rs 45,000 crore where there is a guarantee for 20 per cent first loss. These schemes also clearly point towards extension of support to non-highly rated NBFCs/HFCs/MFIs who have been facing greater difficulty in fundraising, he said.

Jaspal Bindra, chairman of the Centrum Group opined that as against the targeted LTRO scheme offered by the RBI which benefited only large and better-rated NBFCs/HFCs/MFIs, but the new credit support through investments in their debt papers along with the partial credit guarantee scheme is a major respite. Vimal Bhandari, the vice-chairman of Arka Fincap which was formerly Kirloskar Capital, said the new measures announced for MSMEs are a confidence booster for lenders especially NBFCs and will facilitate find inflows.

Shachindra Nath of Ugro Capital said the packages announced NBFCs and MSMEs are interlinked and will play a pivotal role in driving the economy. The liquidity infusion into both these sectors will revive economic activities. “Measures like collateral-free automatic loans, subordinated debt and loans will improve liquidity. Moreover, the boost for NBFCs will further facilitate liquidity infusion to the under-served MSMEs." Satin Creditcare chairman said the Rs 75,000-crore liquidity funds along with the 20 per cent first loss guarantee bring the much needed immediate relief to NBFCs which have been battling liquidity crunch.

He also said NBFCs will also benefit the soaps offered to MSMEs which mostly source funds from NBFCs, and especially the 100 per cent credit guarantee on collateral-free loans and disallowance of global participants for tenders less than Rs 200 crore acts as a morale booster for the sector. Rajosik Banerjee of KPMG India said these new measures will infuse more money in the financial system and thereby benefit NBFCs in a big way.

Jiger Saiya, partner and leader for tax & regulatory services at BDO India said the 25 per cent reduction in TDS means more liquidity to businesses and in bringing more cash to business, rather than the same being stuck in the form of refund claims with the tax department. Umesh Revankar, CEO of Shriram Transport Finance, said the package addresses the concerns of both NBFCs and MSMEs.

"Under the full and partial guarantee scheme, we expect a liquidity boost into the NBFC ecosystem which in turn would help MSMEs to resume their operations. We hope to see the quick revival of the economy in the coming few quarters," he said. Gaurav Gupta of Adani Finserve said these measures will not only provide liquidity support but also provide an opportunity to MSMEs to compete on contracts to grow into larger enterprises going forward which in turn will benefit NBFCs.

MSMEs are the bedrock of the economy, supporting them will automatically see job creation and revive consumption/demand. Liquidity support announced for NBFCs are also appreciated. However, the real impact of these policies depends on their implementation. Rajesh Sharma of Capri Global Capital said the Rs 45,000-crore providing partial credit guarantee for NBFCs will support small and medium players for fresh lending and expand our book portfolio without risk of spike in credit cost for these incremental lending.” PTI BEN MR MR