Sector Update | 13
Sector Update Financials
Relief package announced – Much awaited steps for MSMEs
New measures to help start credit cycle
Finally, the Indian government (GOI) has introduced a slew of measures to ease
liquidity issues and improve risk appetite with credit guarantees for MSMEs/NBFCs.
Incremental 20% credit flow (to take care of operational expenses) to exiting
exposures with moratorium on principal and guarantee should help the MSME space.
This comes as a huge relief to genuine cases, as otherwise the liquidity problem would
have turned into a credit problem for the system.
Direct liquidity flow of INR300b to investment grade NBFC and partial credit guarantee
(20%) to low rated NBFC paper worth INR450b should help resolve near-term liquidity
issues of the NBFC sector.
Overall the government’s bold liquidity and stimulus package toward MSMEs/NBFCs is
an important announcement and would provide the much needed relief to the sector.
Despite the earlier liquidity enhancing measures, lenders were still wary of lending to
the segment fearing credit risk. This would also encourage banks to lend.
While the special liquidity window to NBFCs and the Partial Credit Guarantee (PCG) for
NBFC borrowings are also positive in the near term, we believe the quantum may not
be enough for the NBFC sector as a whole from a medium-term perspective. We
maintain improvement in the demand/macros scenario is the key for the system to
have better risk appetite for NBFCs.
With announcement of the new measures, NBFCs that are most likely to be positively
impacted are SCUF, CIFC and Repco. We maintain our preference toward large private
banking franchises with robust liability mix and diversified asset base. Top ideas:
ICICIBC, HDFCB and SBIN among banks and HDFC in NBFCs.
MSME package – Full guarantee and equity support a positive surprise
Banks and NBFCs can provide an emergency credit line to MSMEs up to 20% of the
credit outstanding as of Feb’20.
The Principal and interest would be 100%
guaranteed by the government.
The key criteria for this line are: (a) borrowers
should have sub-INR250m borrowings and INR1b turnover, (b) loans to have a 4-
year tenor with principal moratorium for the first 12 months, (c) interest rate on
these loans would be capped, and (d) the scheme could be availed till 31
According to the GOI, this would directly benefit 4.5m units to resume business
activities. Further, the GOI is also likely to provide INR200b equity support to
stressed MSMEs (GOI estimates it at ~200k) and INR500b equity support via Fund of
Funds structure to promising MSMEs. While there were speculations about partial
guarantee, full guarantee on incremental disbursements and equity support is a
No immediate sharp surge of MSME NPAs post moratorium period now
In our view, two important points need to be considered: (a) It is a big relief to
genuine cases, otherwise liquidity problems could have turned into a credit
problem, and (b) For cases that are facing business risk, which are unviable even
after providing liquidity, credit risk may get pushed to a year down the line and
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542 |
Investors are advised to refer through important disclosures made at the last page of the Research Report.
13 May 2020
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.