Money & Banking

Atmanirbhar package: Booster shot for NBFCs and HFCs

K.R.Srivats New Delhi | Updated on May 13, 2020

NBFCs hope banks will play ball this time round

The fiscal package for NBFCs, HFCs and MFIs, announced by the Finance Minister Nirmala Sitharaman on Wednesday, has come as a booster shot for these entities during the trying covid-19 times but much would depend on the individual banks' investment guidelines as what constitutes 'investment grade' debt paper varied from bank to bank, say NBFC industry players.

The Government has as part of the Prime Minister's Atmanirbhar Bharat economic package announced ₹30,000 crore Special Liquidity Scheme for Non-Banking finance companies/Housing Finance Companies/Micro Finance Institutions to help those finding it difficult to raise money in debt markets.

It also announced ₹45,000 crore Partial Credit Guarantee Scheme 2.0 for NBFCs.

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Reacting to the announcements, Finance Industry Development Council (FIDC) Co-Chairman Raman Aggarwal said the key message is the full recognition of the most significant contribution being made by NBFCs in last-mile credit delivery to MSMEs by allowing NBFCs to give loans which have a 100% guarantee cover from Government of India.

"Second is the acceptance of FIDC demand to address the liquidity worries of small and medium NBFCs by giving a booster shot of liquidity amounting to ₹75,000 crore which includes "unrated" instruments issued by NBFCs", he said.

Srinath Sridharan, an Independent Markets Commentator, said that the
₹30,000 crore special liquidity support announced will help the Government make investments into the primary and secondary market transactions in investment-grade debt paper of NBFCs/HFCs/MFIs. "This will further augment liquidity as the securities will be fully guaranteed by the Government. This, in turn, should give confidence to the banking system to look at the non-bank sector with optimism for their further lending to them", he said.

The ₹45,000 crore Partial Credit Guarantee scheme for non-banks would help particularly those with low credit rating.
Government guarantees the first 20 per cent of the loss, which can enhance the credit appraisal value.

"This is useful especially for MFIs as many have a rating of AA and below, including unrated debt papers", he added.

Published on May 13, 2020

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