Finance Minister announces liquidity scheme for MSME, NBFCs

Union Finance Minister Nirmala Sitharaman announced a series of measures in assistance to micro- and small businesses that are facing severe cash, steps to boost liquidity for non-banking financial companies (NBFCs) and offering tax measures for individuals and corporates.

Nirmala Sitharaman

All these announcements that are made today were a part of a larger Rs 20 lakh crore support package, disclosed on Monday by Prime Minister Narendra Modi.

What Experts Think about Today’s Announcement?

Umesh Revankar, MD and CEO, Shriram Transport Finance

We welcome the stimulus announcement made by the Finance Minister. The package  addresses the concerns of both NBFC and MSME sectors. Under the full and partial guarantee scheme, we expect boost to liquidity into the NBFC ecosystem which in turn would help MSMEs to resume their operations. All in all it is an excellent package and we hope to see the quick revival of the economy in the coming few quarters.

Bhavin Turakhia-CEO and Co-Founder of Zeta

The first 15 measures announced by the FM today is a great start to revive the economy which is severely impacted due to COVID-19. The packages announced were comprehensive. We welcome the announcement on Rs 3 lakh crore collateral-free loans that will help the MSME sector to rise from this grave period.  Rs 45 thousand crore liquidity announced through Partial Credit Guarantee Scheme 2.0 for NBFCs will usher in the much-needed growth and the new definitions of MSMEs will allow more companies to take benefit of the new package. Government’s decision to boost liquidity through EPF support and the reduction of 10% out of the existing 12% each for all is highly commendable.

The measures undertaken by RBI on the Reduction of Cash Reserve Ratio (CRR) has resulted in liquidity enhancement Rs1,37,000 crores. The decision to disallow global tenders up to 200 crores is likely to be seen as a protectionist move. It is important that we continue to be perceived as a global economy. Startups will have an important role to play in this difficult journey and we are hopeful that the announcements that will follow over the next few days will address this constituent with the same generosity.

Sharad Mittal, CEO, Motilal Oswal Real Estate Fund

The FM has announced a suo moto relief of 6 months for the RERA completion timelines for all projects in all states with an additional window of 3 months that can be granted by the individual state authorities. Considering that projects are likely to be delayed by at least 4 to 6 months due to the lockdown, this is a welcome move for all real estate developers. However, it does not address the larger liquidity and cashflows related challenges faced by the developers.

Akshay Mehrotra, Co-Founder and CEO of EarlySalary

In today speech by our Finance Minister has brought a much-needed relief to restart the economy, and build the Aatmanirbhar Bharat Abhiyan focused by our Prime Minister. According to me, the top five highlights which will help Fintech, NBFCs and mass India at large includes,

  • Collateral free loans to MSMEs with one-year moratorium will be one of the strongest point;
  • NBFCs Rating Restrictions removal will greatly help smaller and new age NBFCs to raise debt from other institutions, this will also help the much needed capital creation;
  • Special Liquidity scheme for NBFCs, HFCs and MFIs: under this scheme, investment will be made for both primary and secondary market transactions in investment grade debt paper of NBFCs/HFCs/MFIs;
  • Securities will be fully guaranteed by Government of India, which will provide liquidity and build confidence in the market;
  • Liquidity measures linked to TDS, EPF and master support to MSMEs, will help and protect many jobs for Indians.

Jyoti Roy, DVP Equity Strategist, Angel Broking Ltd

The Government has announced additional stimulus measures of INR 6 lakh cr today on top of INR 10 lakh crore announced so far with more announcements likey over the next few days. Today’s package tries to address the liquidity issues for the MSMEs, NBFCs and power distribution companies which is positive for banks and NBFCs.

Though more announcements are expected from the FM over the next few days we believe that the total fiscal & monetary package of INR 20 lakh cr. (~10% of GDP) may not be enough and more needs to be done. The US has so far announced fiscal packages of ~USD 3 tn (13.5% of GDP) while the US fed has provided monetary stimulus of ~USD 2.5tn (~11.5%) since the beginning of the crisis. However providing a significantly larger stimulus in line with the US may not be possible given the Government’s fiscal constraint. Therefore we believe that the recovery will be slow and gradual for the Indian economy and we continue with our strategy of sticking to high quality business with revenue visibility like FMCG, Pharma, chemicals and agrochemicals and avoid vulnerable sectors like aviation, consumer durables, real estate hospitality sectors.

Kunal Varma, CBO and C0-Founder, MoneyTap

“The latest measures announced by the Finance Minister, in continuation from what the Prime Minister said, covers quite a few sections of the industry. It includes more than a dozen different measures – measures for the MSMEs, for the NBFC sector, MFIs, and also for real estate and tax measures for direct consumer relief. We have yet to see how some of these measures will get implemented and how the reforms and relief will actually be transmitted, but a few things are interesting and worth noting.

The emergency credit line being extended by banks and NBFCs to businesses and MSMEs will cover up to almost 20% of their outstanding credit, as of 29th February 2020. This will be a significant relief for a lot of businesses and MSMEs, who are really in need of working capital and cash flow.

Borrowers who have a lot of outstanding loans will also be eligible – it will be quite a relief measure for them. The mention of collateral-free automatic loans, to a tune of total Rs. 3 Lakh crore, to be given out to MSMEs will be a good relief measure for that segment of the economy. Loans that will get sanctioned under some of these schemes will have a 4-year tenure which gives the businesses a reasonable turn-around time. Hopefully, its larger impact will be in arresting the growing unemployment rates. With the inflow of cash at lower interest rates and long term repayments, businesses should be able to make payroll.

Joseph Thomas, Head of Research – Emkay Wealth Management

“The announcement made by the Finance Minister, the first in a series, contained several measures targeted at improving liquidity and credit flow into MSMEs and NBFCs and smaller businesses. This assumes greater importance due to the fact that it is these segments which have been adversely impacted due to the lockdown. These measures will go a long way in instilling confidence in banks, financial institutions and investors in supporting the sections of business which actually require aid and help. The measures are more of supply side and there is very little that is on the demand side. Probably, the future announcements may contain a more balanced coverage of demand and supply side factors. Demand side factors generally tend to work faster as it is oriented towards the consuming unit directly.

Pranjal Kamra, CEO, Finology

The announcements made by the Finance Minister today are in line with the PM’s yesterday’s address that focused on achieving self-dependence. The MSMEs are being tried to be given a much required push along with inducing liquidity in various industrial sectors. This will benefit the Indian businesses (and especially MSMEs) and will help in the economic revival. As the lockdown 4.0 has already been announced, the stimulus package looks to provide a thrust to the blocked economic activity. Since, the economic conditions will take time to get back to normal, this might give a slight head-start to the same.

Seema Prem, Founder and CEO, FIA Global

The announcements on MSME brings in crucial government intervention which will certainly prove to be a much-needed booster dose in tackling the current slowdown & regaining the growth momentum. The MSME definition change, the EPFO support and the 20,000 crore support will go a long way in the future to build the economy back.

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Archit Gupta, Founder, and CEO, ClearTax

 With the reduction in EPF rates, some taxpayers may have to relook at deductions they want to claim (Section 80C) especially with the new regime kicking in. Also, surreptitiously the contributions to EPF will fall, interest rates on EPF is already falling; besides lakhs of people have withdrawn EPF balances. All of these measures reduce the interest burden for the government. And while there may be more money at hand, taxpayers need to be acutely aware of their investing and figure out how to work towards building a retirement corpus.”

The government has taken strong measures to improve liquidity in the system. The release of emergency credit lines to MSMEs, capping of interest, and credit guarantee will help them get back on their feet and respond to this crisis.

Reduction in TDS and TCS rates for non-salaried payments and reduction in EPF contribution rates will further increase cash in hand for taxpayers, leading to a consequent boost in demand, setting the economy rolling.

With a standardized MSME definition, which is also widened now, a large number of enterprises can take advantage of the improved credit lines and financing options.”

Harsh Jain, Co Founder, Groww

As the finance minister has said, we’ll get a clearer picture in the following days as more announcements are made. We feel the government has started on a very good note.

The intention to support an already battered MSME sector and put money in the hands of the people is clearly evident. Support to MSME in the form of both giving loans and equity support is directly meant to prop up smaller businesses that employ a huge chunk of our population.Support towards stressed sectors is a good way forward. We will see some of these benefits trickling into debt mutual funds.

Measures like EPF rate reduction, extending tax filing dates, etc, is a very good move too as it takes away some financial obligations on the citizens for some time at least.

Reducing the EPF from 12% to 10% means salaried people will get to take home more money. Putting more money in the hands of people is necessary to spur economic growth as it leads to more spending. We may even see many people invest this extra money they’re getting.

Meghna SuryaKumar, Founder and CEO, Crediwatch

In our view, some of the measures which should be welcomed by small businesses in India are –

(a)         Global tenders barred from procurements up to Rs 200 crores – the Government’s e-procurement sites have typically been flooded by large foreign players who bring unfair advantage in terms of pricing and size. MSMEs working as ancillary units (e.g. autos, infrastructure) lose the bidding on smaller deals. The move should improve the competitiveness of Indian MSMEs on government contracts. It should also see an increase in registration by MSMEs and Mid-Market businesses on such platforms.

(b) New definition for MSMEs – This has been a long pending demand from multiple industry associations. While MSMEs have tried to remain within a particular size in order to benefit from the MSME tag in the past, the new definition will promote them into growing further in size and scale.

(c) Collateral-free automatic loans – While this extends the previous loan moratorium benefits, the new terms should benefit as many as 45 lac businesses and help with working capital requirements in coming days. We believe, setting the threshold for eligibility (Rs 25 cr outstanding and Rs 100 cr turnover) is helpful but it is yet to be seen whether public sector banks will underwrite such unsecured loans at a faster pace on the back of these terms. The real-need of the hour is to move to cash-flow based lending.

(d) Equity & Subordinate Debt infusion – The need for Long term capital will increase three months from now as businesses grapple with uncertain demand and high fixed costs. In our view, the Rs 70,000 crore facility should assist stressed MSMEs in raising funds as the tide turns.

While a technology-driven approach may pave a way to lower recurring costs in the future, the FM’s announcements today should ease the stress of a large number of promoters, partnership firms and small private limited entities. Coupled with lower TDS and TCS rates, the cash-in-hand should be prudently used by these MSMEs in the months to come.

 Shailaz nag, Founder at Dotpe

The announcements made by the Finance Minister today will provide a great push to the MSME sector including small retailers and Kirana stores. MSME sector is the backbone of India and is always the most affected sector while it contributes to more than 30% of India’s GDP. This is a major step towards making a self-reliant India and will also be a great support for the Make in India campaign. This is the most significant step by the government to prevent MSME’s from collapsing due to the current COVID situation and we are working along with by providing different solutions for retailers and MSMEs.

Zafar Imam, Lead, OPPO Kash

The Atma Nirbhar package announced by honorable PM is a great step. Collateral free credit to MSME, Relief to NBFC, HFC, MFI, Real estate developers, and taxpayers are part of a larger package one would have imagined. While the fundamentals of the economy still remain a concern but talk about structural reforms viz. Land, Labour, Liquidity, Laws, and Technology could be a game-changer if implemented faster.

Dr Arunabha Ghosh, CEO, Council on Energy, Environment and Water (CEEW)

More than half of the INR 5.8 lakh crore stimulus outlay announced today focused on our mammoth MSME sector. As many as 40% of India’s total 450 million informal workers are employed with MSMEs. The recovery of this sector is central to our economic resurgence and the well-being of the workers. The stimulus today addressed both the demand and supply side constraints for MSMEs. The systemic focus on generating a larger market for this sector through local procurement and virtual market linkages are leaps in the right direction. This is especially critical as public procurement is likely to see a huge boost in the coming months. In order to meet this demand, a suite of financial and regulatory measures have also been offered.

The MSME sector is also the backbone of India’s energy transition, and a key source of industrial emissions. Having access to capital will allow this sector to accelerate manufacturing, but in a manner that could potentially improve energy efficiency and trigger the switch to cleaner fuels. CEEW research across hundreds of MSMEs has found that access to capital and larger markets could help MSMEs move to more efficient machinery and appliances as the unit economics of the energy transition become increasingly compelling from a competitiveness point of view.

Roma Priya, Founder of Burgeon Law

India’s MSMEs sector is the largest across the world after China. MSMEs might be considered as small investment enterprises but their contribution to the Indian economy has always been noteworthy. Our homegrown enterprises have been hit hard by the pandemic and this move by the government lays a path for liquidity infusion, thereby giving them the necessary handholding. Many of our startups are facing a crisis with the liabilities and are waiting to resume activity and engage their workforce, at least for the next quarter.

The NBFCs will get a push due to special liquidity schemes and partial credit guarantee schemes announced by the government.

Meghna Suryakumar, Founder and CEO, Crediwatch

In our view, some of the measures which should be welcomed by small businesses in India are –

(a) Global tenders barred from procurements up to Rs 200 crores – the Government’s e-procurement sites have typically been flooded by large foreign players who bring unfair advantage in terms of pricing and size. MSMEs working as ancillary units (e.g. autos, infrastructure) lose the bidding on smaller deals. The move should improve the competitiveness of Indian MSMEs on government contracts. It should also see an increase in registration by MSMEs and Mid-Market businesses on such platforms.

(b) New definition for MSMEs – This has been a long pending demand from multiple industry associations. While MSMEs have tried to remain within a particular size in order to benefit from the MSME tag in the past, the new definition will promote them into growing further in size and scale.

(c) Collateral-free automatic loans – While this extends the previous loan moratorium benefits, the new terms should benefit as many as 45 lac businesses and help with working capital requirements in coming days. We believe, setting the threshold for eligibility (Rs 25 cr outstanding and Rs 100 cr turnover) is helpful but it is yet to be seen whether public sector banks will underwrite such unsecured loans at a faster pace on the back of these terms. The real-need of the hour is to move to cash-flow based lending.

(d) Equity & Subordinate Debt infusion – The need for Long term capital will increase three months from now as businesses grapple with uncertain demand and high fixed costs. In our view, the Rs 70,000 crore facility should assist stressed MSMEs in raising funds as the tide turns.

While a technology-driven approach may pave a way to lower recurring costs in the future, the FM’s announcements today should ease the stress of a large number of promoters, partnership firms and small private limited entities. Coupled with lower TDS and TCS rates, the cash-in-hand should be prudently used by these MSMEs in the months to come.

Shishir Baijal, Chairman & Managing Director, Knight Frank India

Today’s announcement by the Finance Minister was eagerly awaited by the real estate sector hoping to receive a new lease of life mostly from challenges emanating from liquidity and demand challenge. To enhance liquidity support and to assuage risk concerns a further expansion of partial credit guarantee scheme for the NBFC/ HFCs has been provisioned. This will hopefully enthuse lenders to look at the sector favorably. On the lockdown related impact on labour shortage and construction delays, extension of registration and completion date of real estate projects under RERA by 6 months will provide some relief to the sector. We now await to hear the subsequent announcements, that could resurrect demand and also boost Infrastructure sector, to make a complete assessment of the impact on the real estate sector.

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