Chennai: Finance Minister Nirmala Sitharaman on Wednesday revealed the details of first tranches of Rs 20 Lakh crore fiscal stimulus package Atmanirbhar Bharat, aimed to revive the economy from COVID-19 impact and subsequent nation-wide lockdown.
Narendra Modi government has announced a 100% credit guarantee for investments made in debt securities in Non-banking Finance Companies (NBFCs), Housing finance corporations (HFCs), and Microfinance institutions (MFIs).
The partial credit guarantee scheme was also announced for investments made on debt paper in these institutions.
Earlier RBI has announced Targeted Long Term Repo (TLTRO ) operations to boost liquidity in shadow banks. But it didn't take off as expected as banks avoided lending to avert risk.
Now Government comes to the rescue NBFCs fund crunch with full and partial credit guarantee schemes. But, will it help non-bank lenders and give them the much-needed liquidity?
Read more:Success of Modi's mega SME relief package hinges on banks
Former Reserve Bank Deputy Governor R Gandhi said today's announcements was different from others. "Banks will invest in financial instruments given by NBFCs, HFCs, MFIs with the government guarantee. So it becomes more attractive for them".
He said if the borrowers didn't repay loans, then banks can depend on government. "In addition to this, because of government guarantee, the credit rating of these instruments gets enhanced. Banks can invest in these debt papers with lesser capital allocation, so bank's Capital to Risk Assets Ratio (CRAR) will improve."
"Earlier banks were only preferring AAA or AA rated bonds, Now banks will have confidence and can go for low rated or even unrated instruments. So liquidity flow to NBFCs, MFIs, HFIs is expected to be higher this time," he added.
