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 part of the government’s Atmanirbhar package, is yet to meaningfully take off. According to the latest data shared by former MSME Minister Nitin Gadkari in the Parliament in March this year, only 343 guarantees amounting to Rs 40.56 crore were issued in the nearly nine-month period as of March 10, 2021. The scheme aimed at providing personal loans through banks to MSME promoters for infusion as equity or quasi-equity. The scheme had targeted to support 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 guidelines.
“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 Financial Express Online.
In contrast to CGSSD, ECLGS has offered support of a significant size to MSMEs. According to the government data, 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 while Rs 2.14 lakh crore was disbursed by partner banks and NBFCs. Moreover, guarantees were issued for loans granted to around 1.09 crore MSMEs, according to the Department of Financial Services, MSME Minister Narayan Rane had informed Parliament last month.
Moreover, MSMEs who went through temporary stress due to Covid and thought that it could be addressed by ECLGS perhaps didn’t see the need 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, guarantee coverage was provided to the eligible borrower for the credit facilities extended wherein the promoter of the MSME was given credit equal to 15 per cent of his/her stake (equity plus debt) or Rs 75 lakh whichever was lower. Moreover, the promoter was required to bring in 10 per cent of the subordinate debt amount as collateral while 90 per cent was to come from the scheme. According to experts, this was among the likely reasons 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 Financial Express Online.
Mehta believed that unless there is a major lockdown following a possible third wave of Covid, there won’t be a major impact on disbursements under 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.”