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The finance ministry has sent a draft circular to banks detailing the implementation of automatic unsecured loans for companies, including micro, small and medium-sized companies, according to a senior banker familiar with the matter. The scheme was announced as part of the ₹20 trillion packages of Atmanirbhar Bharat Abhiyan to boost the economy after the national blockade induced by the covid-19.
According to the draft circular received by the banks, the ₹3 lakh crore scheme will include ₹2.8 lakh crore that will be available as automatic loans and the rest ₹Rs 20 billion which will be available as subordinated debt to stressed MSMEs.
Under the ₹2.8 lakh crore automatic loan scheme, banks can charge 9.25% interest on these loans, while non-bank financial companies can charge up to 14%. The scheme will cover only existing borrowers with an outstanding credit limit of up to ₹Rs 25 million as of February 29, 2020 and with a turnover of ₹100 million rupees. It will also include borrowers with up to 60 days past due (DPD) and will cover both working capital and term loans.
The credit line will be 100% guaranteed by the government through the Micro and Small Business Credit Guarantee Fund (CGTMSE) and there will be no guarantee fee. The ministry has sought comment from banks on this scheme before it comes up with the plan next week, the previously-mentioned banker said.
“The preliminary outline looks good. We had received few inquiries from new customers. The draft has made it clear that the scheme is applicable only to existing customers and those with ₹Rs 25 million, “he said.
The details of other schemes like the ₹A special liquidity scheme of Rs 30 billion is still expected for non-bank financial companies, housing finance companies and microfinance companies.
“Operationalizing the ₹Rs 20 billion subordinated debt scheme and ₹Infusion of Rs 50 billion could be the key. The main problems to be addressed is to develop a coherent approach, the implementing body must be fast and dynamic, and a rapid operationalization of the schemes, since some of these MSMEs may not have the strength to wait for a long period, “he said. Jindal Haria, Director of Financial Institutions, India Ratings
Analysts believe that despite the implementation of these liquidity schemes, the package is likely to benefit entities with higher ratings such as AA and A, leaving BBB companies hungry for liquidity. They believe that banks will continue to be cautious investing in the bonds of these low-rated companies since the government guarantee is available only for the first 20% of the loss. the ₹NBFC’s Rs 45 billion partial credit guarantee scheme will be extended to NBFC’s primary bond and commercial paper issue.
Similarly, the ₹The Rs 30 billion special liquidity scheme includes only investments in investment grade papers that are hardly issued by low-rated NBFCs and MFIs. According to analysts, these companies have experience issuing transfer certificates (PTCs) on their pooled assets.
“The 30,000 cr liquidity scheme could especially help NBFCs at the medium rating levels. There are two caveats here; if transfer certificates would be included in addition to other market instruments and, secondly, the issuance of these instruments, the participation of investment bankers to issue the primary market could take time and some of the NBFCs may not have that luxury Haria said.
Therefore, banks, NBFCs and HFCs are waiting for a small print in the economic package to understand what the real impact might be on the sector.
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