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Indian Express Explained 14/05/2020

1)Credit guarantees to MSMEs: What are they and how will they help:-

What are credit guarantees? :- Loans to MSMEs are mostly given against property (as collateral) because often there isn’t a robust cash flow analysis available.

A credit guarantee by the government helps as it assures the bank that its loan will be repaid by the government in case the MSME falters. For instance, if the government provides say a 100% credit guarantee up to an amount of Rs 1 crore to a firm, it means that a bank can lend Rs 1 crore to that firm; in case the firm fails to pay back, the government will make good all of Rs 1 crore. If this guarantee was for the first 20% of the loan, then the government would guarantee to pay back only Rs 20 lakh.

Why credit guarantees? :-

Efforts to pump liquidity via the banks have been a non-starter because banks simply do not want to lend any new money. Banks, quite justifiably, suspect that any new loans will only add to their growing mountain of non-performing assets (NPAs).

So the government was facing an odd problem: Banks had the money but were not willing to lend to the credit-starved sections of the economy, while the government itself did not have enough money to directly help the economy.

The solution credit guarantees – of 3 Lakh Crores to survive the Pandemic Period.

What are Other Measures :- There is a subordinate debt scheme, worth Rs 20,000 crore, which will allow loans to MSMEs that were already categorised as “stressed”, or struggling to pay back. In this case, the government’s guarantee is not full, but partial.

The third measure is the creation of a fund with a corpus of Rs 50,000 crore to infuse equity into “viable” MSMEs, thus helping them to expand and grow.

How far will these measures help? :-

  • Its a Substantial Step as it will help MSME’s in Paying Salaries
  • The change in definition of MSMEs will also help because “turnover” is the more efficient way to identify an MSME and it also allows a lot of firms,  especially in the services sector like mid-sized hospitals, hotels and diagnostic centres to be eligible for benefits as an MSME.

NEW DEFINITIONS based on TurnOver:-

2)Explained: New rules governing rights issues, and implications for shareholders

First, what is a rights issue?

A rights issue is an offering of shares made to existing shareholders in proportion to their existing shareholding. Companies often offer shares in a rights issue at a discount on the market price.

Rights issues are used by companies seeking to raise capital without increasing debt.

Do shareholders have to purchase shares in a rights issue?

No. Shareholders are not obliged to purchase shares offered in a rights issue. However, not participating in a rights issue may dilute their overall stake in the company, as there would be a larger number of outstanding shares of the company post the issue.

Share prices also tend to come down after a rights issue as the earnings of the company in the future would be divided among a larger number of shares.

Capital markets regulator Securities and Exchange Board of India (SEBI) has come out with guidelines that allow listed companies to serve the letter of offer, application form, and other offer material electronically.

Issuers will also be required to publish the letter of offer and other offer material on their websites, with the Registrar of Companies, and the stock exchange.

What kind of problems may arise as a result of this move?

Shareholders whose email addresses are not registered with the company may not find out about the rights issue, and therefore miss out on the opportunity to invest.

This may lead to an increase in the unsubscribed portion of a rights issue, allowing promoters who typically reserve a right to invest in the unsubscribed portion of the issue to increase their stake in the company.

3) Explained: How a traditional practice is coming in the way of Japan’s Covid response

The System which is coming in the way of Lockdown and work from home is Hanko.

The extensive and almost unavoidable use of the ‘hanko’a personal seal generally made from wood or plastic — for authorising official documents ranging from contracts, marriage registrations and even delivery slips — has been forcing several employees to go to the office to get work done.

What is a hanko?

The hanko is a personal stamp that is equivalent to a signature in other countries, and is an essential part of several transactions. Small-sized and circular or square-shaped, the stamp is wet by an ink pad called ‘shuniku’, and the mark that it leaves on a document is called ‘inkan’.

The use of the traditional seal can be traced back to almost two millennia, when an emperor from China’s Han dynasty gave a solid gold stamp to an envoy from Japan in the year 57 AD.

Why is Hanko under Criticism:-

In response to the novel coronavirus pandemic, Japan has been aggressively promoting a work-from-home policy. Yet, the centuries-old practice is causing employees to go to their workplace, as companies prefer to keep their registered seals at the office premises for security reasons. Many are thus having to take packed trains to work, chiefly for stamping-related work.

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