Solid negotiations are going on with the govt on these issues, with bankers loath to budge on their demands and the government undecided on how much it can offer as a guarantee.
Now banks are offering 10% of outstanding loans to MSMEs at a concessional rate as additional working capital to help them to wave over the temporary liquidity.
People close to the hard negotiations said the according to banker’s view that business activity will take a long time to return on before stage or pre-lockdown levels are countered by government beliefs that the demand is absurd given that the damage would not be long term and cash flows would resume once economy affairs start again.
According to one of the persons cited above, “The discussions are on government guarantee on top-up loans for MSMEs. 100% of the top-up should be guaranteed by the government and guarantee could depend on the turnover of the MSMEs.”
One of the other people said that “The cut off could be ₹ 25 crore turnover per quarter or ₹ 30 crores. But it is not a final decision and the government is still talking about the matter. The total fund for this guarantee could be ₹ 15000 crores which could allow ₹ 1.5 lakh crores loans to be given. But it could be a higher amount of govt feels more is needed.
First of all, the Indian Bank’s Association (IBA) was made the proposals, but they are stuck as the Ministry of Finance is to deal with various industry suggestions. The Prime Minister’s Office (PMO) is said to be involved in all discussions. IBA did not reply to an email seeking comment.
As per one of the another involved in the negotiations said that “The suggestions have been varied and have involved different ministries and corporate bodies. The Ministry of Finance wants to consult all. The IBA has given its suggestions and is now waiting for a reply. Hopefully, things will move in the right direction.”
The government and the RBI, are working on a package to retrieve credit flow to SMEs with the consultation of banks and open the debt market which has almost frigid after the stopped of Six Franklin Templeton Funds.
There is no agreement yet to the amount of losses that Government would take from the new loans or assets purchased.
One more attended of the negotiations said that “The discussions are for a guarantee for only MSMEs loans because this is the segment which is hit the hardest and hence requires more support. This sector is also crucial with regards to employment generation and hence the urgency on these loans.”
An absolute loss guarantee on loans to MSMEs will lower bank risk weights as well as give comforts to banks. Under the banking resolutions loans with a governments backstops are considered less risky.
But if the channels need to clear, NBFCs have to be founded, which are the key intermediaries between the banks and the borrowers. Even if the banks are hesitant to lend them then they could do some asset purchases where the first loss could be guaranteed by government which is up to as 20%.
However, cited people in the negotiation said that “the relief package is under constant discussions and there could be changes.”