Widen MSME scheme ambit: Private lenders to FM Nirmala Sitharaman

Govt likely to issue clarification to add more borrowers under ECLGS

Finance Minister Nirmala Sitharaman on Monday held a review meeting with private banks and non-banking financial companies (NBFCs) to seek feedback to improve the Atmanirbhar Bharat Abhiyan economic package to deal with the impact of Covid-19.

The private lenders asked the government to revisit some provisions in the Emergency Credit Line Guarantee Scheme (ECLGS), under which 100 per cent guarantee coverage is provided to all lenders to enable additional funding to the tune of Rs 3 trillion to smaller business enterprises, to make the scheme more attractive. The scheme is valid for existing customers of banks.

The finance ministry said in a statement that the meeting was attended by Financial Services Secretary Debashish Panda, 20 chief executives of private banks and NBFCs, along with executives of Small Industries Development Bank of India, and discussed ways for “effective implementation of the ECLGS for micro, small and medium enterprises (MSMEs).

“The request from the NBFCs side was that there is a need to include individuals who own vehicles that are put to commercial use, small traders and businessmen who borrow on individual names in this scheme as they are a part of the MSME network. We have made a request that individuals should also be allowed to take working capital loans so that whole MSME ecosystem can be kick-started,” said Ramesh Iyer, vice-chairman and managing director of Mahindra & Mahindra Finance. 

He said the ministry agreed to review their suggestions. A ministry official said the government was looking to issue clarification to include some of these classes of borrowers under the scheme in the next few days.

The banks also wanted the ministry to increase the scope of the scheme to make it in consonance with the new definition of the MSMEs, which was recently accepted by the Centre. For instance, any company with an annual turnover of up to Rs 100 crore would be eligible for funding under the scheme. The government recently revised the definition of ‘medium enterprises’, which will now be firms with an annual turnover of Rs 250 crore, as against Rs 5 crore previously. “We are examining the request to broaden the scope of the scheme,” the ministry official said.

Another demand by lenders was to allow companies with outstanding credit of up to Rs 100 crore as of February 29, 2020, to be a part of the scheme, as against Rs 25 crore at present.

Under the scheme, the government will provide guarantee for any losses suffered by banks due to non-payment by the 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.

The participation from NBFCs and banks to  ECLGS was slow in the initial days and the government has now told them to expedite sanctioning of loans under the scheme. So far, 18 private sector banks and 12-13 NBFCs have become a part of the scheme.

The ministry official said state-owned banks had sanctioned Rs 30,000 crore to over 800,000 firms under the scheme, of which Rs 16,000 crore had been disbursed so far.