A lifeline for MSMEs

Adikesavan S | Updated on May 26, 2020

Guaranteed emergency credit line, a timely step

One of the criticisms against the Atmanirbhar package has been its apparent stinginess in putting money in people’s pockets. Admittedly, a great deal of Keynesian steps are required right now, with supply sides having been disrupted and demand having collapsed. A double-whammy is actually an understatement, going by the outlook for de-growth.

A heartening development though, is the speed with which the ₹3 lakh crore Guaranteed Emergency Credit Line (GECL) — of 20 per cent of existing loans for Micro, Small and Medium units with borrowings of up to ₹25 crore from the system — has been finalised for rollout. The relevant date for assessing those eligible for GECL would be February 29, 2020.

If a unit had a loan outstanding of ₹100 lakh as on that date, almost by right, it would get ₹20 lakh and this additional loan — both principal and interest — is fully guaranteed by the Credit Guarantee Trust Company of the government. The Small Industries Development Bank of India (SIDBI), which is to administer the scheme, has already circulated the scheme details to the lending institutions. It is said that the tireless follow-up of SIDBI Chairman saw to it that the scheme was drafted and delivered to banks within 24 hours flat.

The total loans of the banking system to MSMEs stand at about ₹16 lakh crore and those of NBFCs, about ₹1.75 lakh crore. The GECL will suffice to meet the needs of all MSME units in both banks and NBFCs as one of the conditions is that the unit should not have had overdues of more than 60 days as of February 2020. The turnover limit for eligibility is ₹100 crore.

In a carte blanche of sorts, banks and NBFCs have now been given the liberty to disburse this additional 20 per cent straightaway. The stressed portion in the MSME segment is high but even if one were to assume a 15 per cent stressed portfolio and a further 5 per cent for exclusions due to data skewness (loans to individuals for personal vehicles, etc., are exempted from the scheme), about ₹14.5 lakh crore of loans get covered by the GECL. Thus, ₹2.8 lakh crore of loans will come on tap immediately.

Banks are gearing up for Pre-Approved Limits (PAL) for this extra loan and customers who are eligible will also be intimated and offered this loan through an active outreach. Powers are being delegated to the branches so that the rigmarole of the routine sanction process does not stymie this step.

Under pressure to disburse this loan, the banks are even now being monitored daily by the Department of Financial Services. Sometimes even intra-day updates are being called for. The Finance Minister said last Sunday she would take stock weekly. Bank chiefs led by the SBI Chairman have told the operating staff that additional funding to MSMEs is a sine qua non for loan growth this year. The key point is that the system realises how important its responsibility is.

The disbursal of this ₹3 lakh crore — which has been strategically packaged without a direct fiscal impact — will put money in the hands of MSMEs. It is expected to have a trickle-down effect. One wishes that the next two steps of subordinated debt support of ₹20,000 crore and the equity of ₹50,000 crore, which is part of Atmanirbhar, also become realities soon. That will complete the comprehensive new deal for the sector, one of the largest employers.

The MSME sector will lead the economic revival with this 100 per cent government-guaranteed loan support.

The writer is a top PSU bank official. Views are personal

Published on May 26, 2020

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