Given the current crisis in the economy and the urgent need for liquidity to flow into NBFCs and MFIs, the last mile lending community, CII urges the government to provide partial backstop guarantees. This will ensure banks to overcome their risk averseness and enable full fructification of RBI’s timely intervention announced on Friday. RBI’s slew of measures are both timely and far reaching and is targeted towards ensuring flow of credit towards the NBFCs that in gturn leds to small and medium industry and the farm community.

To tackle the current crisis arisen from the outbreak of COVID-19 and the consequent nation-wide lockdown, Government and Reserve Bank of India (RBI) have announced many measures to ease the stress of businesses.

To instill the necessary confidence into the banking system to participate in the auction and lend to such entities, Confederation of Indian Industry recommends that the Government of India must provide backstop facility in the form of partial credit guarantee scheme with the amount of overall guarantee being limited to loss of up to 20% to 30% of the amount being lent by the banks under the Scheme. There will be no immediate impact on the fiscal deficit, as this will be a contingent liability.

“This step will provide the necessary confidence and assurance to the Banks and encourage them to participate in the auction and disburse much needed cash flows to the investment grade options of MFIs and NBFCs”, said, Mr Chandrajit Banerjee, Director General, CII.

Appreciating the measures announced by Reserve Bank of India yesterday, Mr Chandrajit Banerjee, Director General, CII said that, “The measures announced by RBI particularly the TLTRO 2.0 under which mandatorily an allocation of 50% needs to be done towards medium and small size NBFCs and MFIs has come as a big relief to them.” He further added that “it is expected to provide access to the much-needed liquidity to these entities”.

However, amidst the prevailing scenario wherein the health of the industry and financial sector has taken a dip, the banks are becoming more and more risk averse. Due to subdued risk appetite of banks, it is expected that the auctions under TLTRO 2.0 may see a lacklusture response from the banks. Also, taking cognizance from the results of the past auctions, it is likely that the intent of RBI to infuse liquidity into the system through small and medium sized NBFCs, and MFIs may not fructify.

In this hour of need, NBFC and MFI sector has the ability to ensure smooth and continuous flow of credit, particularly to MSME, farm sector and retail sector and ensure that they are able to earn their livelihood, provide employment to lower income group, make timely payment of salary and wages and do not go through financial distress.

The COVID-19 pandemic has created an uncertainty which is hard to measure. In fact, the impact of COVID-19 has been much worse than the financial crisis faced by the world including India in 2008. Along with economic fall-out, the current situation can be touted as the worst human catastrophe after the two world wars.

18 April 2020
New Delhi