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 intwo 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."