Tranche 1 From Nirmala Sitharaman: Understanding Whats New On Loans

Government will offer bank loans amounting to Rs 3 lakh crore to small businesses, Finance Minister Nirmala Sitharaman said on Wednesday, as part of measures to combat the damage caused by the coronavirus outbreak.

The allocation is part of a Rs 20 lakh crore fiscal and monetary package to support the economy that has been battered by a weeks-long lockdown.

Here is what experts say about the government's package for MSMEs:

Prithviraj Srinivas, Chief Economist, Axis Capital, Mumbai

"Large credit guarantee for MSME sector will ensure that businesses have the ability to pick-up and restart when the lockdown is lifted

Today's measures will help avoid large scale business closures which would have impacted the financial system systemically and broken supply chains

Tranche 1 from the 20 trillion rupees economic package has neutralized rising risk perception in the supply side of the economy."

Sanjoy Dutta, Partner, Deloitte, Mumbai

"The 30,000 crore special liquidity scheme for investing in investment grade paper of NBFCs/HFCs/MFIs is very positive as it directs liquidity where it is most required and will enable these institutions support their borrowing customers through this period of cashflow stress. Detailing and execution of the scheme is key, to ensure there is equitable distribution of the funds across the eligible borrower set."

"The partial credit guarantee scheme is a bold move as it allows banks to renew lending to MFIs and NBFCs/HFCs with non-investment grade rating while ensuring that funds are released only after due risk assessment of the borrower's business and cashflows together with active monitoring of the borrower through the duration of the borrowing as banks/lenders will still carry 80% of the risk of borrower default."

Rupa Rege Nitsure, Chief Economist, L&T Financial Holdings, Mumbai

"I don't think this package will create much stress for the fiscal exchequer as most of the measures are focusing on liquidity and off balance sheet support through credit guarantees and tax deferment. This is the need of the hour as it would restore some good credit channels."

"During 2020, the nation's recovery will essentially be driven by agri & rural economic activities, and support to NBFCs given in the package will play a major role in taking the credit to the remote corners of the economy."

Kunal Kundu, India Economist, Societe Generale, Bengaluru

"As per fiscal 2.0, MSMEs would be mixed beneficiaries of likely credit flow Bank lending to MSMEs directly may have limited impact despite the Rs 3 lakh crore credit guarantee scheme announced."

"The guarantee is for firms with Rs 25 crore outstanding loans or annual turnover of over Rs 100 crore. This rules out loans to micro and small companies which do not come under the definition."

"As per new definition, the official estimate is that there are 6.33 crore small and micro firms and only 5,000 medium firms. This means the beneficiaries would be from these 5,000 firms only." "However, injection of Rs 20,000 crore of subordinate debt will help the small companies. Also, the liquidity injection scheme for lower and even unrated MSMEs and 100 per cent credit guarantee for investment grade papers would ensure improved flow of fund to the MSMEs through the NBFI route."

Arvind Chari, Head Fixed Income and Alternatives, Quantum Advisors

"The announcement of 100 per cent guaranteed loan for MSME is a big move and will help the sector which has been crippled since demonetization and GST and many would have got annihilated with the lockdown. And so is the move for bond buying of NBFC with guarantee, which will resolve the failure of TLTRO 2.0."