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Government announces first tranche of economic package

Government announces first tranche of economic package

To go by the struggle caused due to COVID-19, Finance Minister Nirmala Sitharaman has announced an economic package of ₹ 20 lakh crore under government’s Atma Nirbhar Bharat Abhiyan / Self-Reliant India. Government noted Lockdown 4.0 will be implemented, with all the new rules and regulation which are applicable state wise and will be completely different from the previous lockdowns. The national movement of Atma Nirbhar Bharat Abhiyan / Self-Reliant India initiated by Prime Minister Narendra Modi is to support India’s small and local business. He emphasized on slogan viz. #VOCALFORLOCAL.

 

Aid to Non-Banking Financial Companies (NBFCs) in this economic booster package:

Non-banking financial companies (NBFCs), Microfinance institutions (MFIs) and Housing finance companies (HFCs) will get liquidity support of ₹30,000 crore under liquidity scheme. Under this scheme, banks can invest in investment-grade debt papers issued by NBFCs, HFCs and MFIs through both primary and secondary market transactions. The investment up to ₹30,000 crore will be entirely guaranteed by Government of India.

Additionally, NBFCs, MFIs, and HFCs will even get the assistance of ₹45,000 crore under partial guarantee scheme. This assistance provided by the government is to provide liquidity support to institutions whose credit rating is low. This will be applicable to all unrated papers and the papers with ratings of AA and below issued by NBFCs, MFIs, and HFCs. This will enhance the liquidity support of all the institutions under NBFCs, MFIs, and HFCs. Under this scheme, the first 20% loss will be borne by Indian government i.e. public sector banks resulting in a liquidity of ₹45,000 crore.

 

Aid to Micro, Small and Medium Enterprises (MSMEs) in this economic booster package:

New rules and regulation introduced in MSMEs is to enhance the growth of small businesses are as follows:

1) Government of India introduced the new definition for Micro, Small and Medium Enterprises (MSMEs) which includes increase in investment limits, new additional criteria of turnover, manufacturing and service sector will be considered same and introduced some new amendments to law. New definition states micro units, small units and medium can invest up to ₹1 crore and turnover below ₹5 crore, ₹10 crore and turnover below ₹50 crore, ₹20 crore and turnover below ₹100 crore, respectively.

2) Government introduced the provision of Collateral-free Automatic Loans of ₹3 lakh crore. This provision will help 45 lakh MSMEs in India. MSMEs can avail loan from banks, and NBFC’s. The eligibility criteria of granting loan is MSMEs with ₹25 crore outstanding credit & turnover of ₹100 crore are eligible to take advantage of this provision. They can avail the scheme before October 31st 2020. However, interest will be charged on the loan granted, but 100% guarantee will be ensured by Banks & NBFCs.

3) MSMEs which are undergoing through massive losses and NPAs, provision of Subordinate Debt worth ₹ 20,000 crore will be offered by the government. Approximately 2 lakh small companies will be aided through this provision. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) will get assistance of ₹4,000 crore from government in return CGTMSE will provide partial credit guarantee support to banks.

4) Government will set up Fund of Funds (FoF) amounting ₹10,000 crore. This will help MSMEs for equity funding and in their potential growth and viability. Set up Fund of Funds (FoF) will be functioned by Mother Funds and some daughter funds. Daughter fund level will help Fund of Funds (FoF) to provide assistance of ₹50,000 crore MSME’s to get listed on stock exchanges and also for their expansion.

5) To support movement of VOCAL FOR LOCAL government will not pass global tender worth ₹200 crore. This step will immensely help in the growth of MSME’s.

6) Government noted all the dues of Micro, Small and Medium Enterprises (MSMEs) will be cleared in the upcoming 45 days.

 

 

Aid to Employee Provident Funds (EPF’s) in this economic booster package:

Government of India stated they will extend their support under Employees Provident Fund scheme by 3 months i.e. for the month of June, July, and August 2020. This provision will cover 3.67 lakh institutions and help approximately 71 lakh employees by providing liquidity relief of ₹2,500 crore.

Relief of ₹6,750 crore will be observed by a reduction in Employees Provident Funds (EPF) contribution for business and workers. This provision will cover 6.5 lakh institutions covered under Employees Provident Fund Organization (EPFO) and approximately 4.3 crore employees are benefited. However, state run Public sector undertakings (PSU’s) will continue to pay 12% as employer contribution.

 

Aid to contractors in this economic booster package:

Railways, Ministry of Road Transport and Highways, and various central agency will get leeway up to 6 months in construction work, all contacts which have obligations to complete in a stipulated time period. Bank guarantees are partially released to ease cash flows.

 

• Aid to Real Estate sector in this economic booster package:

Extension of 6 months will be provided in a timeline of all Real Estate Regulatory Authority (RERA) projects. All the registration and completion dates of projects under RERA will be covered in this provision.

 

Aid in Tax Reforms in this economic booster package:

There will be a reduction of 25% in TDS/TCS on all the transactions executed by individuals and businesses. This provision will help to provide liquidity support of ₹50,000 crore. This reduction will be effective from 14th May 2020 to 31st March 2021. Due date of income tax return (ITR) filings is extended to 30th November 2020.

 

 

 

What are liquid funds? Find more

Equity Right

Lenders seek replacements for debt schemes

Lenders seek replacements for debt schemes

Debt mutual funds are the funds which are invested in instruments like treasury bills, certificate of deposits and c-papers. This instruments have fixed interest earnings with fixed tenure. Although, this interest is fixed for throughout the period of investment on the underlying asset. The main goal is to collect wealth through the interest earned and increase the overall investment value. Best debt scheme is decided on the basis of the credit rating given to them. If the credit rating is high. it means debt security have higher chances of paying the interest and principle during the time of maturity.

Debt schemes are usually taken by the investors and high network individual (HNI). They are risk averse and not ready to invest in equities. They choose debt funds according to their requirement for short to medium term. While investing in any scheme, investor considers points like what is the objective of funds? In which category this funds fall, how much risk is involved. Factors like cost, investment horizon and financial goal is also considered. Debt funds are evaluated on the factors like fund history, fund returns and ratios like financial ratios and expense ratios. Some best performing debt funds are SBI magnum constant maturity fund, ICICI prudential constant maturity gilt fund, UTI gilt fund, Axis banking and PSU debt fund and Kotak dynamic debt fund.

 

Franklin Templeton’s decision:

Franklin Templeton is one of the biggest mutual fund house and stands in 9th position in the country. They have recently announced that they are winding up the their 6 debt schemes. They are credit risk fund, duration fund, dynamic accrual fund, short term income plan, ultrashort bond fund and income opportunities fund. If valued altogether, this 6 schemes hold around 30,000 core asset of investors. After these scheme got windup, investors who had invested in this scheme cannot withdraw their cash on the basis of the asset they have put and their money is locked.

 

Liquidity concerns:

After Franklin Templeton scraped six debt schemes, liquidity became the main concern for the financial institution. Therefore they have asked investors and HNI’s who have borrowed fund from the banks and other financial institution to bring additional margins in debt mutual fund. This also includes franklin Templeton’s schemes. Investors and promoters have invested money in these schemes to raise money so that they can invest in the market or any other short term scheme to meet their short term capital requirement. Many high network individuals have borrowed money from NBFCs and bank to invest in the mutual funds. They are giving more than 8% returns and are more risky.

 

 

How will businesses survive social distancing?

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