There is a need for speedy implementation of the recent measures announced by the government for NBFCs to provide maximum benefit to micro, small and medium enterprises (MSMEs), according to a report.
In order to support NBFCs, the government had announced steps such as Rs 30,000 crore of special liquidity scheme for NBFCs, housing finance companies and micro finance companies, Rs 45,000 crore of partial credit guarantee scheme and Rs 50,000 crore equity infusion for MSMEs through Fund of Funds, among others.
"Ironing out operational challenges and speedy implementation (of measures for NBFCs) would be key to avoid restricting the benefits to the targeted segment (MSMEs)," India Ratings and Research said in a report.
It said the Rs 30,000 crore special liquidity scheme, which is fully guaranteed by the government, can incentivise banks to take exposure in the lower rated investment grade non-banking financial companies (NBFCs).
Banks would be able to have slightly better pricing on these loans, notwithstanding them being proposed to be backed by a government guarantee, on account of the lower bargaining power of the lower rated NBFCs, it said.
The scheme allows for primary and secondary market transactions, which can help mutual funds (especially credit funds) sell some of their papers and generate liquidity, easing some pressure on them.
The report said Rs 45,000 crore partial credit guarantee scheme with 20 per cent first loss protection from the government is aimed at providing some incentive to lenders.
It could provide some liquidity window to small NBFCs, provided lenders have the risk appetite to fund these entities after getting 20 per cent loss cushion, the rating agency said.
"While the 20 per cent first loss protection in the assignment/ securitisation can be a strong incentive if operationalised suitably, investments by lenders in primary papers based on the 20 per cent guarantee would be based on loss estimation by lenders," it said, adding that it may lead to the funds largely flowing to higher rated entities.
The government has also announced collateral-free loans worth Rs 3 lakh crore for MSMEs with a 100 per cent guaranteed cover on them.
"This additional funding takes care of the liquidity requirements of these entities for some time and to that extent could prevent them from being classified as NPAs. This also helps in restricting the jump in credit cost for lenders," the report said.
The rating agency said MSMEs may continue to face the pain if the lockdown persists for a longer time and resumption of business operations gets delayed.
"The real problem facing these companies is demand compression; until that gets resolved, providing loans can only lever the balance sheet, but is not a sustainable solution," it added.
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