Credit and Finance for MSMEs: The Rs 20,000-crore Credit Guarantee Scheme for Subordinate Debt (CGSSD), which was implemented in late June last year with respect to the restructuring of Covid-hit MSMEs as element of the government’s Atmanirbhar package, is but to meaningfully take off. According to the most current information shared by former MSME Minister Nitin Gadkari in the Parliament in March this year, only 343 guarantees amounting to Rs 40.56 crore had been issued in the practically nine-month period as of March 10, 2021. The scheme aimed at offering individual loans by means of banks to MSME promoters for infusion as equity or quasi-equity. The scheme had targeted to help 2 lakh Covid-hit MSMEs that are stressed and NPA accounts as of April 30, 2020, that are eligible for restructuring as per the Reserve Bank of India suggestions.
“It was a very good scheme launched last year. However, as the government had simultaneously come up with ECLGS, instead of going for restructuring, people (MSMEs) opted for ECLGS as that was giving ready credit to remain afloat for the next two to three years and also an option for those who availed ECLGS to go for restructuring too. So ECLGS was a very customer-friendly scheme. It was like a ready plate of food that you can have versus the subordinate debt which was like you can starve for some time and create your resistance,” Sunil Mehta, Chief Executive Officer, Indian Banks’ Association told TheSpuzz Online.
In contrast to CGSSD, ECLGS has provided help of a considerable size to MSMEs. According to the government information, as of July 2, 2021, the scheme had sanctioned Rs 2.73 lakh crore loans (60.6 per cent) of the Rs 4.5 lakh crore scheme limit whilst Rs 2.14 lakh crore was disbursed by companion banks and NBFCs. Moreover, guarantees had been issued for loans granted to about 1.09 crore MSMEs, according to the Department of Financial Services, MSME Minister Narayan Rane had informed Parliament last month.
Moreover, MSMEs who went by means of short-term anxiety due to Covid and believed that it could be addressed by ECLGS maybe didn’t see the have to have for undergoing restructuring. “In banking parlance, once you go for restructuring, you are treated as a stressed account. You are tagged that you are restructured whereas ECLGS doesn’t give you that tag for taking additional funding to cater to Covid-related stress,” added Mehta.
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Under CGSSD, assure coverage was offered to the eligible borrower for the credit facilities extended wherein the promoter of the MSME was offered credit equal to 15 per cent of his/her stake (equity plus debt) or Rs 75 lakh whichever was reduced. Moreover, the promoter was necessary to bring in 10 per cent of the subordinate debt quantity as collateral whilst 90 per cent was to come from the scheme. According to specialists, this was amongst the most likely factors for MSMEs to ignore it.
“There was, in fact, not much need for this scheme. If an MSME is already in financial distress, how will the promoter manage even that 10 per cent. Why would an MSME go for restructuring to take a loan under this scheme? If you don’t want an additional loan and there is no need to increase equity, there is no strong reason for MSMEs to consider the scheme. Also, banks are not very forthcoming to give loans to stressed accounts,” Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small & Medium Enterprises (FISME) told TheSpuzz Online.
Mehta believed that unless there is a main lockdown following a achievable third wave of Covid, there will not be a main effect on disbursements below the ECLGS scheme “as already the demand is returning to normalcy. In terms of NPA, there won’t be a major challenge for the next 1.5-2 years as incremental lending to MSMEs as well as to enterprises in the hospitality sector will provide a breather.”