Government looks to super funds to back $2 billion small business plan

Superannuation funds will be courted to participate in the federal government’s $2 billion push to increase funding for small business.

The government’s two part policy announced on Wednesday features a potential $2 billion investment in a  securitisation fund to help small businesses access debt finance outside the big banks and the “encouragement” of the establishment of a growth fund to provide longer term equity funding.

Mr Frydenberg told Fairfax Media on Friday there was a clear need for the funds “with the big banks responsible for more than 80 per cent of small business loans that are less than $2 million, there are few alternative funding routes.”

Treasurer Josh Frydenberg announced the two funds on Wednesday.
Treasurer Josh Frydenberg announced the two funds on Wednesday. Credit:Alex Ellinghausen

Securitisation fund

The securitisation fund will operate through the government buying bonds that are drawn from a pool of small business loans and providing cheaper funding to smaller banks and non-bank lenders through new or existing warehouse facilities.

The government will receive interest from these loans on a monthly basis which is where it will make its money and a well placed source said the government hopes superannuation funds will also participate in a similar way.

Ultimately the source said the government envisages it will not have to keep investing as the market matures which could take around three to five years.

Looking to superannuation funds

Joseph Healy, is the co-founder of SME lender Judo Capital, which is likely to benefit from the fund and said if the government is willing to invest money through the fund, superannuation funds may be willing to invest as well.

Related Article

Frydenberg's $2b plan is a solution searching for a problem
Finance

Frydenberg’s $2b plan is a solution searching for a problem

“Being able to invest into the securitisation fund and access a pools of funds rather than individual funds is a much better way for SMEs to access the superannuation market,” he said.

Eva Scheerlinck, chief executive of the Australian Institute of Superannuation Trustees, said new investment opportunities are always welcome but it’s too early to say what the response will be from super funds.

“Super funds have a fiduciary duty to their members to ensure that every investment made is the right one for their portfolio and the investment outlook,” she said.

“At the end of the day, the assets that trustees invest in still have to be of investment grade and assessed against a rigorous criteria to ensure members get the best outcomes.”

Australian Institute of Superannuation Trustees chief executive Eva Scheerlinck.
Australian Institute of Superannuation Trustees chief executive Eva Scheerlinck.Credit:Steven Pam

Small business ombudsman Kate Carnell helped develop the policy and said the securitisation fund would encourage smaller banks and non bank lenders to lend to small businesses.

“For second tier banks the cost of lending is a mix of risk and cost of capital,” she said. “Why don’t they lend now?  The cost of capital is high and the dilemma of lending to small business or SMEs is that the risk is higher. By bringing down the cost of capital you can make the business case for some of these lenders to focus on small business.”

Small businesses having trouble securing finance

01:16

Small businesses having trouble securing finance

Small businesses are being promised easier access to finance through a new $2 billion fund to be unveiled by the Morrison Government.

Growth fund

The second part of the government’s policy is to promote the establishment of a growth fund.

The government is consulting with the Australian Prudential Regulatory Authority and the banks over how the fund would work.

The fund would provide passive equity investment to small businesses to enable them to grow without taking on additional debt or giving up control of their business and is likely to be modelled on similar funds in the United Kingdom and Canada.

Since its establishment in 2011, the United Kingdom’s business growth fund has invested some $2.7 billion in a range of sectors across the economy.

Unlike a traditional private equity investment or a ‘Shark Tank’ style investment, businesses would not have to give up control or offer a board seat.

A similar fund doesn’t exist in Australia in part because the amount of capital APRA requires banks to hold for these investments makes it unprofitable for the banks however this treatment is under review.

The government’s role will be limited to setting up the rules around the funds operation and ensuring reporting and auditing.

[“source=ndtv”]

Government called upon to reform tax system to aid small businesses

Sue O’Neill was speaking at the SFA’s annual lunch in Dublin, which was attended by about 400 members

Sue O’Neill was speaking at the SFA’s annual lunch in Dublin, which was attended by about 400 members

The Government needs to urgently implement “real reform” within the tax system to ensure competitiveness and end discrimination against the self-employed and entrepreneurs, the head of the Small Firms Association has said.

Sue O’Neill, chairwoman of the SFA, said taxation remains one of the most powerful tools available to the State as it urged the Government to do more to support small business.

“The opportunity to address areas of our tax policy that hinder our ability to compete with our nearest neighbours in particular, were missed in Budget 2019 and instead of ensuring that no additional costs were imposed on small business, we see the reinstatement of the 13 per cent vat in sectors that reinvented themselves and significantly contributed to our recovering economy,” she said.

‘Important pillars’

“One of the most important pillars of a national small business strategy is a comprehensive tax policy. As a country we need to urgently implement real reform within our tax system to ensure sustainable competitiveness for small business and finally end tax discrimination against the self-employed and entrepreneurs,” Ms O’Neill added.

Ms O’Neill was speaking at the SFA’s annual lunch in Dublin, which was attended by about 400 members.

Warning about the dangers Brexit poses for small firms, Ms O’Neill also spoke of a softening of confidence among members with a recent study showing that the number of companies who feel the business environment is improving has declined.

[“source=ndtv”]

RBI’s New Norms On Bad Loans A Wake Up Call For Defaulters, Says Government

Image result for RBI's New Norms On Bad Loans A Wake Up Call For Defaulters, Says Government

Banks will face penalties in case of failure to comply with the guidelines, RBI said.

New Delhi: In a bid to hasten the resolution of bad loans, RBI has tightened rules to make banks identify and tackle any non-payment of loan rapidly, a move the government said should act as a “wake up call” for defaulters. The Reserve Bank of India abolished half a dozen existing loan-restructuring mechanisms late last night, and instead provided for a strict 180-day timeline for banks to agree on a resolution plan in case of a default or else refer the account for bankruptcy.

Financial Services Secretary Rajiv Kumar said the new rules are a “wake up call” for defaulters.

“The government is determined to clean up things in one go and not defer it. It is a more transparent system for resolution,” he said,” he told PTI here.

Under the new rules, insolvency proceedings would have to be initiated in case of a loan of Rs. 2,000 crore or more if a resolution plan is not implemented within 180 days of the default.

Banks will face penalties in case of failure to comply with the guidelines, RBI said.

Financial Services Secretary said the RBI’s decision would not have much impact on provisioning norms for banks.

The revised framework has specified norms for “early identification” of stressed assets, timelines for implementation of resolution plans, and a penalty on banks for failing to adhere to the prescribed timelines.

RBI has also withdrawn the existing mechanism which included Corporate Debt Restructuring Scheme, Strategic Debt Restructuring Scheme (SDR) and Scheme for Sustainable Structuring of Stressed Assets (S4A).

The Joint Lenders’ Forum (JLF) as an institutional mechanism for resolution of stressed accounts also stands discontinued, it said, adding that “all accounts, including such accounts where any of the schemes have been invoked but not yet implemented, shall be governed by the revised framework”.

Under the new rules, banks must report defaults on a weekly basis in the case of borrowers with more than Rs. 5 crore of loan. Once a default occurs, banks will have 180 days within which to come up with a resolution plan. Should they fail, they will need to refer the account to the Insolvency and Bankruptcy Code (IBC) within 15 days.

Last year, the government had given more powers to the RBI to push banks to deal with non-performing assets (NPAs) or bad loans.

The gross NPAs of public sector and private sector banks as on September 30, 2017 were Rs.7,33,974 crore, Rs. 1,02,808 crore respectively.

“In view of the enactment of the IBC, it has been decided to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets,” RBI said in the notification.

As per the revised guidelines, the banks will be required to identify incipient stress in loan accounts, immediately on default, by classifying stressed assets as special mention accounts (SMAs) depending upon the period of default.

Classification of SMA would depend on the number of days (1- 90) for which principal or interest have remained overdue.

“As soon as there is a default in the borrower entity’s account with any lender, all lenders – singly or jointly – shall initiate steps to cure the default,” RBI said.

The resolution plan (RP) may involve any actions/plans/ reorganisation including, but not limited to, regularisation of the account by payment of all over dues by the borrower entity, sale of the exposures to other entities/investors, change in ownership, or restructuring.

The notification said that if a resolution plan in respect of large accounts is not implemented as per the timelines specified, lenders will be required to file insolvency application, singly or jointly, under the IBC, 2016, within 15 days from the expiry of the specified timeline.

All lenders are required to submit report to Central Repository of Information on Large Credits (CRILC) on a monthly basis effective April 1, 2018.

In addition, the lenders shall report to CRILC, all borrower entities in default (with aggregate exposure of Rs. 5 crore and above), on a weekly basis, at the close of business every Friday, or the preceding working day if Friday happens to be a holiday.

The first such weekly report shall be submitted for the week ending February 23, 2018, the notification said.

The new guidelines have specified framework for early identification and reporting of stressed assets.

In respect of accounts with aggregate exposure of the lenders at Rs. 2,000 crore and above, on or after March 1, 2018 (reference date), resolution plan RP should be implemented within 180 days.

“If in default after the reference date, then 180 days from the date of first such default,” the notification said.

[“Source-ndtv”]