Who are beneficiaries?

MSMEs
In the first tranche of the stimulus package, the government had announced collateral-free
loans for MSMEs to the tune of Rs 3 lakh crore, where both principal and interest risk will be
borne by it. This measure, while limiting the immediate outgo for the government, should
encourage risk averse banks to lend to MSMEs. Though it does raise the spectre of moral
hazard, as only a fraction of loans extended are likely to turn bad, actual credit flow to
MSMEs could be much higher.
This will help cash-starved MSMEs access funds to meet their obligations such as paying
salaries. Further, relaxing the definition of MSMEs (from investments upto 5Cr to
investments upto 10Cr) addresses the perverse incentives of wanting to remain small. This
will incentivise MSMEs to scale up as and when the economy picks up, without worrying
about not being able to take advantage of existing incentives.
NBFCs:
[The TLTRO announcement from RBI (on April 17, 2020) aimed at injecting around Rs
50,000 Cr of additional liquidity into the banking system, specifically via Banks to small and
mid-sized NBFCs and MFIs. However, the results announced by RBI were not so good news
for small and mid-sized NBFCs and MFIs as they were falling short by almost half of the
total capacity expected. The limited response by banks in the TLTRO 2.0 clearly highlighted
their reluctance to lend in the current situation and the stipulation that they should invest only
in "investment grade" debt may have been holding them back] Background – Can be
spoken, need not be in the slide

It is pertinent to note that given the lack of risk appetite in banks, Special liquidity scheme of
Rs 30,000 crore for NBFCs/HFCs/MFIs. Also, Rs 45,000 crore liquidity infusion through a
Partial Credit Guarantee Scheme 2.0 for NBFCs (especially for lower rated NBFCs) has been
launched by the Finance Minister as a part of first tranche of Rs. 20 lakh crore Relief Package
announced on May 13, 2020.

This will increase the availability of credit to end borrowers, hopefully at lower or more
competitive interest rates. These timely measures taken by the government will benefit the
financial market as NBFCs were suffering from a significant business impact and liquidity
stress due to COVID-19.

All India Financial Institutions (AIFIs)

AIFIs such as the National Bank for Agriculture and Rural Development (NABARD), the
Small Industries Development Bank of India (SIDBI) and the National Housing Bank (NHB)
play an important role in meeting the long-term funding requirements of agriculture and the
rural sector, small industries, housing finance companies, NBFCs and MFIs. These All India
Financial Institutions raise resources from the market through specified instruments allowed
by the Reserve Bank, in addition to relying on their internal sources.

In view of the tightening of financial conditions in the wake of the COVID-19 pandemic,
these institutions are facing difficulties in raising resources from the market. Accordingly, it
has been decided to provide special refinance facilities for a total amount of Rs 50,000 crore
to NABARD, SIDBI and NHB to enable them to meet sectoral credit needs. This will
comprise Rs 25,000 crore to NABARD for refinancing regional rural banks (RRBs),
cooperative banks and micro finance institutions (MFIs); Rs 15,000 crore to SIDBI for on-
lending/refinancing; and Rs 10,000 crore to NHB for supporting housing finance companies
(HFCs). Advances under this facility will be charged at the RBI's policy repo rate at the time
of availment.

Special Liquidity Facility for Mutual Funds (SLF-MF)

The SLF-MF, which was opened for an amount of Rs 50,000 crore is a window that allowed
RBI to lend money to banks at the repo rate for 90 days. The fund that banks borrowed under
this window was confined to meet the liquidity needs of mutual funds.

This move came as there was fear in the market that mutual fund houses might face liquidity
shortages shortly after Franklin Templeton Mutual Fund shut six of its open-ended debt
funds, effective April 23.

Through this facility, which has been made available exclusively for investment-grade bonds,
RBI has indirectly showed its willingness to act as buyer of last resort for corporate bonds for
bond markets if they are unable to sell their holdings at a fair price in the market. This would
ease the pressure on mutual funds to sell their investments at a huge discount to meet
redemptions.