The draft circular sent by the finance ministry to banks, detailing the implementation of collateral-free automatic loans for businesses, including micro, small and medium enterprises (MSMEs), says banks can charge up to 9.25% interest, said a senior banker, requesting anonymity. The scheme was part of the 20-trillion Atmanirbhar Bharat Abhiyan to kickstart the economy amid the covid-19 outbreak.
According to the draft, the ₹3 trillion scheme comprises ₹2.8 trillion in automatic loans, while ₹20,000 crore will be made available as subordinate debt for stressed MSMEs. Under the automatic loan scheme, banks can charge interest of 9.25%, while non-banking financial companies (NBFCs) can charge up to 14%.
The scheme will cover only existing borrowers with outstanding credit limit of up to ₹25 crore as on 29 February, and having a turnover of up to ₹100 crore.
It will also include borrowers with up to 60 days past dues, and cover working capital and term loan facilities.
The credit line will be 100% guaranteed by the government through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), but no guarantee fee. The ministry also sought feedback from banks on the scheme before it comes up with the blueprint next week, said the banker.
“The draft scheme looks good. We had received few queries from new customers. The draft has made it clear that the scheme is applicable only to existing customers and those with outstanding of ₹25 crore," he added.
The details of the other schemes, such as the ₹30,000-crore special liquidity scheme for NBFCs, housing finance companies (HFCs) and micro-finance institutions (MFIs), are still awaited.
“Operationalizing the ₹20,000-crore subordinate debt scheme, and the ₹50,000-crore equity infusion, could be the key. Main issues that need to be tackled is consistency in criteria, the implementation body needs to be fast-moving and dynamic, and quick operationalization of the schemes, as some of these MSMEs may not have the strength to wait for a a long period," said Jindal Haria, director, financial institutions, India Ratings.
Analysts said despite the implementation of these liquidity schemes, the package is likely to benefit higher-rated entities with AA and A, leaving the BBB companies starved for liquidity.
They said banks will still be cautious investing in bonds of the lower-rated companies as the government guarantee is available only for 20% of the loss. The ₹45,000-crore partial credit guarantee scheme for NBFCs will be extended to primary issuance of bonds and commercial papers of NBFCs.
Similarly, the ₹30,000-crore special liquidity scheme includes only investments in investment grade papers, which are hardly issued by lower-rated NBFCs and MFIs.
According to analysts, these companies have experience issuing pass through certificates (PTCs) on their pooled assets.
“The ₹30,000-crore liquidity scheme could help NBFCs in the middle rating levels. There are two caveats here: One, whether pass through certificates would be included in addition to other market instruments and, two, issuing these instruments, engaging with investment bankers for issuing the primary market could take time and some of the NBFCs may not have that luxury," said Haria.
Banks, NBFCs and HFCs are therefore awaiting the fine print of the economic package to understand its real impact on the sector.
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