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Expert Views: India Unveils $60 Billion Credit Line For Small Businesses, Lenders Hit By Lockdown

While India announced the loan package for small businesses, shadow banks and power companies as part of measures to combat the economic damage caused by the coronavirus pandemic, check how the industry reacted.

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India's government said on Wednesday it will offer nearly $60 billion of loan guarantees for small businesses, shadow banks and power companies as part of measures to combat the economic damage caused by the coronavirus pandemic.

COMMENTARY

ANAGHA DEODHAR, ECONOMIST, ICICI SECURITIES, MUMBAI

"The focus was clearly on MSMEs which have been amongst the hardest hit sectors. Full government guarantee, moratorium for first 12 months and inclusion of stressed units are good features, making the scheme attractive."

"On the NBFC front, some countries started buying corporate bonds from the market directly to support them. Indian government has also resorted to it now. It's a good move but they should maintain good underwriting standards to limit contingent liabilities ballooning in the coming years."

RAHUL BAJORIA, CHIEF INDIA ECONOMIST, BARCLAYS, MUMBAI

"We believe that the government today has unveiled support close to almost 5.95 trillion rupees, with another 6.7 trillion rupees (2.3% of GDP) of spending announcements likely over the coming days."

"The impact on the fiscal deficit will likely be smaller than the headline figures announced by the government, and by our calculations, today's measures will take up 555 billion rupees of total fiscal spending on balance sheet, which indicates that the government can still spend 1.35 trillion rupees of GDP on balance sheet in further measures." 

"We believe the government may end up with a fiscal deficit of close to 6% GDP during FY20-21 We await clarity on next set of measures in coming days."

ANUJ PURI, CHAIRMAN, ANAROCK PROPERTY CONSULTANTS, MUMBAI

"Providing a major relief to real estate developers, the government has extended the timeline for project completions and registration by 6 months. This is a big move that will de-stress developers significantly, since construction activity had been halted all across the country. Homebuyers' wait for their homes will get extended by this move, but this was in any case inevitable."

"Further, the announcement of 30,000 crore rupees special liquidity scheme for NBFCs/HFCs and MFIs will ease liquidity woes of stressed players."

"This will benefit the real estate sector significantly, given that NBFCs and HFCs are major lenders to it."

RAM RAHEJA, DIRECTOR, S RAHEJA REALTY, MUMBAI

"We welcome the government's stimulus boost to spur growth and build towards a self-reliant India. The 75,000 crore rupees liquidity boost for NBFCs is a meaningful step and directed in sheer interest of the industry."

"These steps will help ease the liquidity concerns for the real estate sector as the strengthening of the NBFCs to lend will in turn enable liquidity flow in ecosystem. Any measures that help boost the real estate sector will help in revival of the economy. Overall, we see this as a positive move."

NIKHIL KAMATH, CO-FOUNDER & CHIEF INVESTMENT OFFICER, ZERODHA & TRUE BEACON, BENGALURU    

"India's biggest economic stimulus approximating 10% of India's GDP is difficult to fathom. The government has however announced a commitment towards making systemic changes in the ecosystem which will give an unprecedented boost to COVID-ridden markets. MSMEs and local manufacturing will see a short term rebound in sentiment."

"NBFCs are getting some much-needed liquidity as well. We applaud the government's restraint in coming out with these announcements, but key will be the implementation of this stimulus which could be the deciding factor in ascertaining the recovery."

SHARAD MITTAL, CEO, MOTILAL OSWAL REAL ESTATE FUND, MUMBAI

"The FM has announced a suo moto relief of 6 months for the RERA completion timelines for all projects in all states with an additional window of 3 months that can be granted by the individual state authorities."

"Considering that projects are likely to be delayed by at least 4 to 6 months due to the lockdown, this is a welcome move for all real estate developers."

"However, it does not address the larger liquidity and cashflows related challenges faced by the developers."

SREEJITH BALASUBRAMANIAN, ECONOMIST, IDFC AMC, MUMBAI

"The credit guarantees are not amounts which go into fiscal deficit fully, like the 3 trillion rupees for MSMEs. These are contingent liabilities. The actual amount of government outgo will be much lower."

"But the measure works with a multiplier and it mainly improves risk appetite of banks and triggers lending to smaller firms. The recent increase in borrowing of 2% of GDP might cover only the fiscal slippage from revenue and non-debt capital receipts and may not fully cover the stimulus being announced."

"Additional borrowing cannot be ruled out, both through dated securities and short term t-bills."

PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI

"Large credit guarantee for MSME sector will ensure that businesses have the ability to pick-up and restart when the lockdown is lifted."

"Today's measures will help avoid large-scale business closures, which would have impacted the financial system systemically and broken supply chains. Tranche 1 from the 20 trillion rupees economic package has neutralized rising risk perception in the supply side of the economy."

SANJOY DUTTA, PARTNER, DELOITTE, MUMBAI

"The 30,000 crore rupees Special Liquidity Scheme for investing in investment grade paper of NBFCs/HFCs/MFIs is very positive as it directs liquidity where it is most required and will enable these institutions support their borrowing customers through this period of cashflow stress."

"Detailing and execution of the scheme is key, to ensure there is equitable distribution of the funds across the eligible borrower set."

RUPA REGE NITSURE, CHIEF ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI

"I don't think this package will create much stress for the fiscal exchequer as most of the measures are focusing on liquidity and off balance sheet support through credit guarantees and tax deferment. This is the need of the hour as it would restore some good credit channels."

"During 2020, the nation's recovery will essentially be driven by agri & rural economic activities, and support to NBFCs given in the package will play a major role in taking the credit to the remote corners of the economy."

AMAR AMBANI, SENIOR PRESIDENT AND HEAD OF RESEARCH – INSTITUTIONAL EQUITIES, YES SECURITIES

“The package announced by the finance minister is effectively designed to be impactful, yet not burden government finances.

The policy has been crafted largely around liquidity needs of employees, MSME and NBFCs.

Market will eagarly await for announcements around land reforms, labour and law in the coming days.

Collateral free loans for MSMEs with a full credit guarantee by the government will be highly fruitful. Likewise for the Rs300bn infusion in debt papers of NBFCs.

 Impact of Rs200bn subordinate debt will be lukewarm though since it only congress with a partial guarantee from the government. In fact, clearing dues to MSMEs within 45 days is a bigger relief. Changing the definition itself, brings a lot more micro-institutions into the scheme.

Banks will be wary of lending to AA & below rated NBFC, a scheme that comes with only a partial guarantee. In this case, government should form an AIF and invest through such a vehicle.

The fund-of-fund concept for MSMEs is also a step in the right direction, but it will take a few months to be implemented. Hence, we believe it will have more of medium-term implications.

 We also welcome the reforms announced by the government around discoms as it ensures a steady flow of income. However, it just puts the burden on REC and PFC.  The other reforms announced today were satisfactory and standard in nature. They were necessary as India is still reeling under the lockdown, and the economy has come to a standstill.

Overall, the announcement will provide much-needed relief to the market. We believe what has come through, will not disappoint the market, and it will also inch upwards and remain cheerful for the next few days.”

KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU

"As per fiscal 2.0, MSMEs would be mixed beneficiaries of likely credit flow. Bank lending to MSMEs directly may have limited impact despite the 3 trillion rupees credit guarantee scheme announced."

"The guarantee is for firms with 250 million rupees outstanding loans or annual turnover of over 1 billion rupees. This rules out loans to micro and small companies which do not come under the definition."

"As per new definition, the official estimate is that there are 63.38 million small and micro firms and only 5,000 medium firms. This means the beneficiaries would be from these 5000 firms only."

"However, injection of 200 billion rupees of subordinate debt will help the small companies. Also, the liquidity injection scheme for lower and even unrated MSMEs and 100% credit guarantee for investment grade papers would ensure improved flow of fund to the MSMEs through the NBFI route."

"Overall, I am not too convinced about the efficacy of this announcement."

ARVIND CHARI, HEAD FIXED INCOME AND ALTERNATIVES, QUANTUM ADVISORS PVT. LTD, MUMBAI

"The announcement of 100% guaranteed loan for MSME is a big move and will help the sector which has been crippled since demonetization and GST and many would have got annihilated with the lockdown. And so is the move for bond buying of NBFC with guarantee, which will resolve the failure of TLTRO 2.0."

GEORGE ALEXANDER MUTHOOT, MD, MUTHOOT FINANCE

"We welcome all the measures that the government has announced to uplift the economic scenario in the country. These measures will boost the liquidity into the system and support MSMEs to get back to business. We are confident that the country will come out stronger with the government`s360 degree plans for all segments of the society to combat the novel Coronavirus. Muthoot Finance will continue to support the government and help the rural economy get back on track. All in all with the announcements of these schemes,  we expect the economy to recover soon."

SHARAD MITTAL, CEO, MOTILAL OSWAL REAL ESTATE FUND

“The FM has announced a suo moto relief of 6 months for the RERA completion timelines for all projects in all states with an additional window of 3 months that can be granted by the individual state authorities. Considering that projects are likely to be delayed by at least 4 to 6 months due to the lockdown, this is a welcome move for all real estate developers. However, it does not address the larger liquidity and cashflows related challenges faced by the developers”. 

KISHAN JAIN, DIRECTOR AT GOLDMEDAL ELECTRICALS 

“We welcome the move by the Government of India on providing much needed relief to industry through the INR 20 lakh crore economic package announced. Finance Minister’s plan of providing INR 3 lakh crore collateral-free automatic loans for MSMEs will provide much needed line of credit to the sector that is currently under strain due to the COVID-19 lockdown. Additionally, the INR 20K crore subordinate debt for stressed MSMEs will provide a much needed shot in the arm and will help these companies get back on their feet. By changing the way MSMEs and SMEs are defined through the increase in the investment and turnover limits, it will enable them to gain the benefits that the Government provides. All of these measures will definitely ease the financial burden of this sector and boost growth and expansion. It will also invigorate MSMEs by investing in building innovative products and services that will give further boost to Aatma Nirbhar Bharat Yojana announced by PM Modi yesterday and give a much needed fillip to India’s economy post the lockdown.”

VISHWAKUMARA KAYARGADDE, FOUNDER AND COO, SAANKHYA LABS

“The measures announced by the Government of India come as a much needed relief to the MSME sector that has been going through a difficult time since the onslaught of the COVID-19 outbreak. Today’s announcement by the Finance Minister of providing Rs. 3 lakh crore collateral-free automatic loans for MSMEs, will help companies tide over the uncertainty that has arisen due to the extended lockdown. Also, stressed MSMEs can take advantage of the Rs. 20K crore subordinate debt announced today as this will help sustain their business and boost growth. While the government has given a thrust to manufacturing through its flagship ‘Make in India’ programme, the new steps announced will promote local companies to manufacture their products within the country. This will also help ramp up investments in the MSME sector and incentivize companies to build a local ecosystem. That said, the measures announced today will go a long way in providing a much needed fillip to the economy and allow Indian companies such as Saankhya Labs to develop innovative and technology-driven solutions locally which can be exported globally.”

KUNAL LAKHARA - VP OF FINANCE AND OPERATIONS - POCKET ACES

“During the current COVID-19 lockdown, we applaud the timely and strategic announcements made by the Government of India in the form of the INR 20 lakh crore economic package. With MSMEs being at the center of the storm, the INR 3 lakh crore collateral-free automatic loans announced by the Finance Minister will provide a timely line of credit to these companies, helping them tide over the crisis sooner. Additionally by redefining what constitutes an MSME through the increase in their investment and turnover limits, we will see a lot more organisations benefiting from the Government’s schemes. What is even more inspiring is the INR 20K crore subordinate debt for stressed MSMEs, which will provide these companies with adequate time to stabilize themselves in midst of a challenging economic situation. We believe that all of these measures together will not only ease the financial burden of these enterprises but also pave a way for business growth, expansion and innovation. This in turn will help India get back onto its feet and continue its high growth trajectory in the years to come."

JIGAR DOSHI, FOUNDING PARTNER, TMSL

"The Atmanirbhar Bharat initiative saw a series of incentives, concessions and relaxation related to MSME, real estate, NBFCs, and even Direct tax. However, any mention of GST or Indirect Taxes was completely absent. It will be relevant to see if any clarity emerges to address the issues such as e-way bills issued during lockdown period, centre- state indirect tax incentives to set up manufacturing units, not linking entitlement input tax credit of a taxpayer with creditors default in GST reporting, and specific relaxations to Indian pharma and essential goods units for sustaining the countries basic requirements"

ASHOK MOHANANI, CHAIRMAN, EKTA WORLD & VP NAREDCO, MAHARASHTRA 

“Given the distressed economic environment triggered by the health crisis and the resultant dent in the sentiments of the consumers as well as stakeholders of the sector, the announcement today was the need of the hour and has bought some respite. The 30,000 crore special liquidity scheme for NBFCs/HFCs/MFIs will bring in cash flows thereby keeping the business cycle running and bring in some confidence in the consumer in the gloomy market. In another announcement FM suggested a suo moto relief to the developers for the registration and completion date should be extended by 6 months for all registered projects expiring on or after 25th March, 2020 without any individual applications of real estate projects under RERA in all states with an additional window of 3 months with the permission of individual state authorities. This move will ensure the sector gets operational relief. It's a welcome move and a breather for those who are struggling to pull through the crisis. However, there is still the need to address the larger liquidity and cash flows related challenges faced by the developers. The government has stood by the expectation of the sector to treat the pandemic as a ‘force majeure’ event."

"Furthermore, it’s important for the FM to grant a waiver or reduction in the interest on terms loans and consider the one time roll over of loans such that developers can focus and utilise the funds for completion of projects and repayments can be made back ended.”

PANKAJ JAIN, DIRECTOR-KW GROUP

I welcome this move by the government, of extension of the deadline for projection completion and registration as it extends a great relief to the real estate sector as a whole. in the current situations and halted construction activities, this is like a stress buster as it would relieve the developers. This move will help in the overall economy upliftment.

UMESH REVANKAR, MD AND CEO, SHRIRAM TRANSPORT FINANCE

“ We welcome the stimulus announcement made by the Finance Minister. The package  addresses the concerns of both NBFC and MSME sectors. Under the full and partial guarantee scheme, we expect boost to liquidity into the NBFC eco system which in turn would help MSMEs to resume their operations. All in all it is an excellent package and we hope to see the quick revival of the economy in the coming few quarters." 

SAMARTH AGRAWAL, FOUNDER & CEO, MAXWHOLESALE

"We concur and applaud the vision of the Prime Minister on local manufacturing, modernizing the supply chain, and the emphasis on self-reliance. A Rs 20 lakh crore fiscal stimulus and boosting MSMEs in India will strengthen the economy and encourage business restructuring while continuing to build the trust of the investors as well. COVID-19 has indeed taught us to look at new ways in the demand-supply dynamics; a fundamental level change in managing an end-to-end supply chain. By deciding a fourth phase of lockdown PM Modi has prioritized life and health of the citizens as he has 360-degree visibility on national data. Regressing on the past it is safe to assume the availability of essential products would be ensured by keeping supporting channels operational. B2B e-commerce is an important cog in the wheels of supply chain and shall continue to grow. All of this coupled up by the announcement by the Finance Minister of changing MSME’s definition to help more enterprises and Rs 3 lakh Cr Covid-19 relief fund is a silver lining to many start-ups in the country. Such efforts will indirectly give more validation to Kirana stores when we think of B2B e-commerce in the FMCG segment, leading to more validation of unit economics.”

SONAM, KS LEGAL

1. Real estate:- The real estate industry was grappling a slow growth trajectory, which came to a complete standstill during the pandemic. Supporting real estate players to survive the bear-run, the Finance Ministry announced an extension of registration and completion date suo-moto by 6 months for all registered projects expiring on or after March 25, 2020.  Victory over the pandemic and reopening of the Indian economy remain elusive, but deadline relaxation coupled with liquidity infusions might help the real estate industry see some light at the end of the tunnel.
2. Vivaad se Vishwas:- In a second extension of the Vivaad se Vishwas scheme, litigants can settle tax disputes without paying an additional 10% as interest or penalty. Earlier, the government had extended the deadline for this scheme without paying any interest and penalty to June 30, 2020, from March 31, 2020. Now, individuals can benefit under the scheme until December 31, 2020. With disruptions in business and lifestyle, tax disputes are likely to spike in the post-COVD era. As per the scheme, income tax disputes settled under it cannot be reopened in any other proceeding by the income tax department or any other designated authority. The scheme can be seen as a double whammy with a reduced burden on the judiciary and expeditious resolution of disputes by experts. However, what steps can be taken in case of an appeal of judgment remains a grey area.
3. MSMEs:- MSMEs – often lacking in pomp and media coverage – are the backbone of the Indian economy. The new vision of “Atma Nirbharta” is being shaped by infusing funds into MSMEs – the definition of which is expanded to allow higher investment limits to benefit small and medium enterprises. Emergency credit lines, collateral-free loans, and subordinated debt to stressed MSMEs are some of the supply side measures aimed at helping them survive the pandemic and accelerate growth despite the current economic gloom.
4. Employees:-The mega economic package accorded relief for salaried workers and taxpayers by reducing TDS/TCS by 25% applicable to all payments from May 14, 2020, till March 31, 2021. Reduction in EPF contribution from 12% to 10% for employees and employers along with the extension of PMGKY for the next three months are some of the steps to alleviate the crunch and ramp up production while increasing take-home salaries for employees. While these steps cater to the demand side of the market by proferring liquidity to cash-starved workers, a vast majority of unorganized laborers will require separate crisis management packages.
5. NBFC/HFC/MFI:-The measures announced yesterday will accord a major relief to businesses, especially those in the lowest rung of the pyramid. Numerous MSMEs borrow not from Banks but NBFCs, HFCs, and MFIs to support their business operations or expansion plans. The government’s infusion-for-survival by way of Rs. 30,000 crore special liquidity scheme to NBFCs, HFCs, and Micro Finance Institutions, is aimed to ease credit flow for the survival of businesses and ramp up production and sales for the sustenance of the small and medium enterprises. The secondary beneficiaries of this measure are millions of Indians employed in this sector, living with a fear of losing their livelihoods, who can be relatively at ease with the potential accelerated growth of MSMEs in the post-COVID era.    


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