SME lenders laud govt's move

The central government’s decision to increase the credit guarantee for small companies would help wean away the latter’s dependence on money lenders, says lenders to the segment.

In the backdrop of currency demonetisation, Prime Minister Narendra Modi had over the weekend announced some help for small and medium enterprises (SMEs). While increasing the existing credit guarantee scheme, he’d said non-banking finance companies (NBFCs) would also be covered. As a result, government, through a trust, will be able to underwrite up to Rs 2 crore each of such loans given by both banks and NBFCs. 

NBFCs say this will help their long-term growth, though there will be short-term pain, with the lack of clarity on the amount of liquidity in the system.

“People will see how businesses are going to play out,” said Gaurav Hinduja, co-founder and managing director of online SME lender CapitalFloat. 

“They might not be aggressive in terms of investments for the next three months, till there is clarity and visibility about the amount of liquidity.”

Adding: “It is a big push for us. It will open a lot of informal sectors and we can start to experiment with the new borrowers and give far more aggressive loans.” They plan, he said, to now experiment with larger-size loans and lower interest rates.  

“The increase of the limit is a very good move. The last (such) scheme ws in 2000 and many changes had been made to it. A lot of NBFCs can now be covered,” said Harshvardhan Lunia, co-founder and chief executive officer, Lendingkart. 

These digital lenders foresee a surge in requests for loans and, more important, higher risk tolerance because of the guarantee scheme. 

The government’s move should also many more SMEs being forced to transact using digital means, with the lack of availability of cash. “If we look at a six to 18 months horizon, SMEs will be the biggest beneficiaries, with significant upside,” said Hinduja.  

Currently, most NBFCs and banks cap their unsecured lending between Rs 50 lakh to Rs 1 crore, as there is no collateral required. With the increased credit backing, this threshold will go up and financial institutions will start giving larger unsecured loans in the Rs 1-1.5 crore bracket.

SOPS ANNOUNCED

NBFCs have been brought under the enhanced credit guarantee scheme for SMEs. Earlier, only banks were included

Increased the existing Rs 1-crore credit guarantee scheme to Rs 2 crore

Govt has also asked banks to raise the credit limit for SMEs from 20% of turnover to 25% 

To increase digital transactions among enterprises, banks have also been asked to increase working capital loans from 20% of turnover to 30%