Economic package won't fully offset negative impact of Covid-19: Moody's

While these measures will help ease asset risks for the financial sector, they will not fully offset the negative impact from the coronavirus outbreak, Moody's said.

Moody's Investors Service on Tuesday said the measures announced by the government for financial institutions as part of Rs 20 trillion-economic package will help ease their asset risk, but will not fully offset the negative impact from the Covid-19 outbreak.

The government last week announced a support package of Rs 3.70 trillion for micro, small and medium enterprises (MSME) sector, Rs 75,000 crore for non-banking financial companies (NBFCs) and Rs 90,000 crore for power distribution companies.

This is part of the overall economic package announced by the government over last week to mitigate the economic impact of coronavirus crisis.

While these measures will help ease asset risks for the financial sector, they will not fully offset the negative impact from the coronavirus outbreak, Moody's said in a commentary titled Financial Institutions - India: Support measures to provide relief to the financial system, but will not solve all issues'.

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On MSME package, the rating agency said the sector was already under stress before coronavirus outbreak and further slowdown in economic growth will lead to more liquidity woes.

With regard to measures for NBFCs, it said the support is far lower than the immediate liquidity requirements of those companies and the sector will continue to pose risks to the banks.

Amongst the measures, the most significant is the government guaranteed, automatic and uncollateralised loans to MSMEs.

Such loans will help improve MSMEs' near-term liquidity and ease asset risks for the banks and NBFCs who are the key lenders to the sector, it said.