New Fiscal Measures - June 2021 - Acuité Ratings & Research

Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research

"The government of India has announced a few additional fiscal relief measures for the businesses and borrowers impacted severely by the second wave of the pandemic. The size of the ECLGS programme which was launched in May 2020 and had undergone subsequent revisions to include a larger pool of borrowers, has been increased from Rs. 3.0 Lakh Cr to Rs 4.5 Lakh Cr. As per government sources, an aggregate amount of Rs 2.69 Lakh Cr has been disbursed under this programme by banks and NBFCs. Acuité has also noted that a substantial number of MSMEs in its rated portfolio has availed additional funding from ECLGS which has helped them to maintain an adequate liquidity position and service its existing debt despite the challenging business environment.

Furthermore, the finance ministry has also announced a separate guarantee of Rs 1.1. lakh Cr for the Covid affected sectors including Rs 50,000 Cr for the healthcare sector. The guarantee in the healthcare sector is primarily to facilitate fresh investments in medical infrastructure in Tier-II cities and even in smaller locations. With a guarantee coverage of 50%-75% in all such expansion or greenfield project loans upto Rs 100 Cr at a competitive interest rate of 7.95%, the credit offtake for the healthcare sector is expected to see a significant uptick over the medium term. The above scheme follows RBI's decision in May 2020 to open an on-tap liquidity window of Rs 50,000 Cr at repo rate for banks to provide fresh loans for healthcare infrastructure including those related to Covid-19.

While the sectors eligible for the balance guarantee amount of Rs. 60,000 Cr have not been fully specified, it has been made applicable for smaller businesses in the tourism sector which have been heavily disrupted by the pandemic. The government proposes to provide 100% guarantee for fresh working capital loans upto Rs 10.0 lakh to individuals and micro-businesses engaged in the sector. This will provide some relief to the stressed tourism sector.

The other significant measure from the government is a credit guarantee scheme for the MFI sector which has also been particularly impacted by the second wave of Covid. Since the MFI sector has an exposure to the informal sector whose businesses have been substantially affected by the pandemic, its collections have taken a hit in the current quarter. Further, banks have continued to be cautious while taking fresh exposure specailly to smaller MFIs. In this context, the decision to provide upto 75% guarantee for bank loans to the MFI sector upto an aggregate amount of Rs 7,500 Cr is a timely step. In our opinion, this will not only support the continuity of credit flow to microfinance borrowers but also provide some liquidity relief to smaller MFIs."

Source : Equity Bulls

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