×

UPSC Courses

DNA banner

DAILY NEWS ANALYSIS

  • 14 May, 2020

  • 10 Min Read

Liquidity lifeline: On Nirmala’s MSME package

Liquidity lifeline: On Nirmala’s MSME package

Introduction

The first tranche of announcements made by Finance Minister Nirmala Sitharaman under the Atmanirbhar Bharat Abhiyan on Wednesday is impressive indeed.

Focus areas

  • The measures announced will go a long way in lifting the spirits of the two key and troubled sectors of MSMEs and non-banking finance companies.
  • While for the MSMEs it is an existential crisis, for the NBFCs it is one of liquidity.

Fiscal package for MSMEs

  • The massive ?3-lakh crore collateral-free assistance handed out to MSMEs will help them crank up their operations.
  • The Government has extended a sovereign credit guarantee for the complete amount as banks may otherwise have been reluctant to support troubled borrowers.
  • The ?20,000 crore partially guaranteed subordinated debt programme and the ?50,000 crore fund of funds scheme will help boost the equity portion on MSME.

Subordinated Debt

Subordinated debt is riskier than unsubordinated debt. Subordinated debt is any type of loan that's paid after all other corporate debts and loans are repaid, in the case of borrower default. Borrowers of subordinated debt are usually larger corporations or other business entities. Subordinated debt is the exact opposite of unsubordinated debt in that senior debt is prioritized higher in bankruptcy or default situations.

When a corporation takes out debt, it normally issues two or more bond types that are either unsubordinated debt or subordinated debt. If the company defaults and files for bankruptcy, a bankruptcy court will prioritize loan repayments and require that a company repay its outstanding loans with its assets. The debt that is considered lesser in priority is the subordinated debt. The higher priority debt is considered unsubordinated debt.

Fiscal Stimulus to NBFCs

  • NBFCs, housing finance firms and micro finance entities get a much required liquidity boost in the form of a ?30,000 crore scheme wherein their debt paper will be fully guaranteed by the government.
  • With this, and the partial credit guarantee scheme of ?45,000 crore, the government has broken the logjam wherein banks were unwilling to extend credit despite the RBI’s strong push.
  • This should largely attenuate the liquidity crisis in the non-banking space for now.

The Minister has also done well in addressing the liquidity issues of power distribution companies through a ?90,000 crore infusion that will be securitised on their receivables and backed by a State government guarantee.

While the headline numbers appear big, the reality is that the government will be called upon to bear the liability only if the economic situation becomes hopeless; it may not come to that.

Issues

  • The government did not specify interest cap on these loans without leaving it to individual lenders as each of them has its own rate structure.
  • The scheme could have been extended until the end of this financial year instead of until October 31.
  • India is now entering the monsoon season when activity is traditionally dull, so it is not clear how many borrowers will get the benefit.
  • There are no measures for the migrant workers in its announcements.

Source: TH


Formation Day

On 1st November, eight Indian states—Andhra Pradesh, Chhattisgarh, Haryana, Karnataka, Kerala, Madhya Pradesh, Punjab, and Tamil Nadu—along with five Union Territories—Andaman and Nicobar Islands, Chandigarh, Delhi, Lakshadweep, and Puducherry—celebrate their Formation Day. This date marks an important milestone in India

Turtle (Kachhua) Wildlife Sanctuary

The Turtle Wildlife Sanctuary, also known as the Kachhua Sanctuary, is located in the Varanasi district of Uttar Pradesh. It is recognised as India’s first freshwater turtle wildlife sanctuary, established to conserve endangered turtle species and support the ecological health of the Ganga River. Location and Extent The sanctuary co

Introduction of AI and Computational Thinking (CT) in

The Ministry of Education plans to introduce Artificial Intelligence (AI) and Computational Thinking (CT) from Class 3 onwards in the 2026–27 academic year. This initiative is part of the National Curriculum Framework for School Education (NCF-SE) 2023 and aligns with the National Education Policy (NEP) 2020. The aim is to prepare student

Sal Tree

Scientists from the Environment Department of Himachal Pradesh University (HPU) in Shimla have recently revealed that the Sal tree (Shorea robusta) is the most effective natural air purifier for combating rising pollution levels. Their findings highlight the tree’s superior capacity to trap dust, absorb gases, and cleanse the air compared

US Resumes Nuclear Weapon Testing

The President of the United States has ordered the resumption of nuclear weapon testing after a gap of 33 years, the last test being in 1992. This decision marks a significant shift in global nuclear policy and has far-reaching implications for geopolitics, the environment, and international security. Status of Global Nuclear Weapon Testing

DNA

03 Dec,2025

Toppers

Search By Date

Newsletter Subscription
SMS Alerts

Important Links

UPSC GS Mains Crash Course - RAW Prelims Answer Key 2024