The Rs 20,000-crore Subordinate Debt for Stressed MSMEs scheme, launched as element of the Rs 20-lakh-crore Atmanirbhar package last year by the government and operationalized in August, is but to uncover MSME takers. Around nine months following the launch of the scheme which, aimed at supplying private loans via banks to the promoters of stressed MSMEs for infusion as equity or quasi-equity, had only 332 beneficiaries involving guarantees worth Rs 38.5 crore as of March 4, 2021. The information was shared by MSME Minister Nitin Gadkari in a written reply to a query in the Rajya Sabha. The scheme otherwise had targeted to help 2 lakh Covid-hit MSMEs that are NPAs or stressed. According to Icra Ratings, gross non-performing assets (GNPAs) are anticipated to rise to 9.6-9.7 per cent by March 31, 2021, and 9.9- 10.2 per cent by March 31, 2022, from 8.6 per cent as of March 31, 2020.
Who is eligible for the scheme?
All MSMEs which have regular accounts as of March 31, 2018, and have been regular or NPA for the duration of FY19 and FY20 are eligible. The scheme is valid for MSMEs which are Special Mention Accounts -2 and NPA accounts as of April 30, 2020, who are eligible for restructuring as per RBI recommendations. However, defaulting accounts are not deemed below the proposed scheme.
How considerably quantity can be raised?
Promoters of MSMEs can raise credit equal to 15 per cent of their stake in the enterprise or Rs 75 lakh whichever is reduce. For instance, if the promoter has place Rs 6 crore in the enterprise, then 15 per cent of it would be Rs 90 lakh. Hence, he would be eligible for an quantity of Rs 75 lakh only. In case MSMEs have current limits with more than one bank, the scheme can be availed by the MSME via one lender only. MSME will have to submit a declaration to the lender with regards to its other banking arrangements and that it has not availed funding below the scheme from other banks.
How considerably will be the assure charge and the extent of the assure coverage?
According to the scheme recommendations, a assure Fee of 1.50 per cent per annum on the assured quantity on an outstanding basis could be borne by the MSME as per its arrangements with the bank. Also, the quantity equivalent to the assure charge paid by the bank could be recovered by it from the MSME. While 90 per cent of the assure coverage would be contributed by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), the remaining 10 per cent would be from the MSME promoter as collateral.
“There might be some flaw in the scheme if only nearly Rs 40 crore of guarantees were issued till March. Moreover, how would the struggling MSME promoter contribute even 10 per cent collateral. Government must do away with this or else NPAs may rise based on how long the Covid would last. On the other hand, the credit limit should be graded. For instance, it could be 40 per cent for Rs 1 crore credit, and going higher, the credit limit could be lower. MSMEs today are left with no money,” Rajiv Podar, Managing Director, Podar Enterprise and President, Indian Merchants’ Chamber (IMC) Chamber of Commerce and Industry told TheSpuzz Online.
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How considerably is the interest price and tenor period?
Interest prices are as per the RBI recommendations in September 2019 and February 2020 to benchmark all MSME loans to one of the external benchmark prices decided by banks which includes either repo price, government of India treasury bills, or any other benchmark marketplace interest price published by the Financial Benchmarks India. The tenor is defined as per the repayment schedule defined by the bank, topic to a maximum tenor of 10 years from the assure availment date or March 31, 2021, whichever is earlier. The maximum tenor for repayment will be 10 years though the moratorium will be of maximum seven years on the payment of the principal quantity. While the interest would have to be paid month-to-month, the principal will have to be repaid inside 3 years following the moratorium period. MSMEs can also pre-spend the loan devoid of any extra charge.
What in case of default?
Banks may well take more than the assets of MSME and the quantity realized from the sale of the latter’s assets to settle the debt. According to the recommendations, any subsequent quantity left post-settlement of senior debt would be appropriated involving trust (CGTMSE) and bank in the ratio of the extent of assure coverage.
“Government’s challenge of supporting industry is limited with its debt / GDP at 90 per cent. RBI is quite supportive but still much is required as far as industries and the entrepreneurs representing them are concerned. Fiscal and monetary policy should go hand in hand. More support from the government to aid the economy is required, though constraints are well known. Rebates on income tax like the 25 per cent reduction on TDS (Covid version 1.0) is called for to overcome cash flow commitments. More leeway is required in GST compliance. Also, bankers have to look beyond the balance sheets and personal guarantees. There are other more challenges to be resolved to support MSMEs,” L Ravindran, MD and CEO, Wealthmax Enterprises Management told TheSpuzz Online.