Money & Banking

In relief to MSMEs, banks to provide subordianted debt

Our Bureau Mumbai | Updated on February 01, 2020

Hoping to allay the working capital concerns of micro, small and medium enterprises (MSMEs), Finance Minister Nirmala Sitharaman has proposed a scheme to provide subordianted debt to such entrepreneurs.

“This subordinate debt to be provided by banks would count as quasi-equity and would be fully guaranteed through the Credit Guarantee Trust for Medium and Small Entrepreneurs (CGTMSE). The corpus of the CGTMSE would, accordingly, be augmented by the government,” she said in her speech on Saturday.

Restructuring window

The Budget has also proposed extending the Budget restructuring window for MSMEs by another year till March 31, 2021. It was expected to end in March this year.

Noting that more than five lakh MSMEs have benefited from the restructuring of debt permitted by the Reserve Bank of India last year, Sitharaman said the government will ask the central bank to consider extending the window.

The Budget has also promised an app-based invoice financing loans product. “This will obviate the problem of delayed payments and consequential cash flows mismatches for the MSMEs,” said Sitharaman.

Entrepreneurs cheered the move and said it will ease the functioning of these firms.

“The financing environment for the sector is sought to be strengthened through measures such as the availability of subordinate debt guaranteed by CGTSME,” said SMERA Gradings and Ratings, adding that the debt recast window will help improve MSMEs’ liquidity position and their access to funds for fresh investments.

Published on February 01, 2020

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