NBFC industry body writes to FM to include individuals under ECLGS scheme

Says more than 75% of customers take loans in their individual names as they do not have any business establishment or partnerships and are compelled to conduct their businesses in individual names

The Finance Industry Development Council (FIDC), an industry body representing NBFCs, has sought inclusion of individuals who take loans for purchasing vehicles — to be put to commercial use — as eligible borrowers under the emergency credit line guarantee scheme (ECLGS).

Under this scheme, a 100 per cent guaranteed cover is provided to all lenders, in order to enable additional funding of up to Rs 3 trillion to small businesses.

The FIDC has written to Finance Minister Nirmala Sitharaman in this regard, stating that above 75 per cent of customers take loans in their individual names given that they do not have business establishments or partnerships, and operate under individual names.

Recently, the National Credit Guarantee Trustee Company (NCGTC), which runs the ECLGS scheme, issued a notification to scheduled commercial banks and NBFCs.

It clarified that all eligible borrowers like micro, medium, and small enterprises (MSMEs) — constituted as proprietorship, partnership, registered company, limited liability partnerships, trusts and society, or any other legal entity — along with individuals (in the case of loans under MUDRA), are eligible for the scheme.

FIDC added that most loans extended by NBFCs to individuals for vehicle purchase (commercial use) do not get refinanced under MUDRA as the loan amount is either above Rs 10 lakh or the interest spread is higher than mandated (to cover higher operating costs and credit loss).

“However, these loans are disbursed exclusively for the purchase of vehicles for commercial purposes,” the letter added.

During a meeting between the FM and representatives of NBFCs/private banks last month, the non-banking financiers had raised the same issue and had requested for inclusion of such borrowers so that they could avail working capital loans that will enable the whole MSME ecosystem to revive.

As of July 1, PSBs had sanctioned Rs 63,235 crore under ECLGS, of which Rs 33,349 crore has been disbursed. Loans under the scheme have been sanctioned to above 3 million MSMEs, with the amount having been disbursed to almost 1.26 million of them.

At present, business enterprises/MSMEs with an outstanding of up to Rs 25 crore as on February 29, 2020 and turnover of up to Rs 100 crore in FY20, are termed ‘eligible’ borrowers under ECLGS. 

Under the scheme, the government will provide guarantee for any losses suffered by banks on account of non-payment by borrowers, for all loans sanctioned till October 31, 2020, or till the time the limit of Rs 3 trillion is reached, whichever is earlier. The cap on interest rate for banks is at 9.25 per cent, whereas for NBFCs, it is 14 per cent per annum.