Here’s What Going in the MSME Industry

Reserve Bank of India (RBI) asked lending institutions to assign zero per cent risk weight on credit facilities under ECLGS to MSME loan seekers
  • BY Jaspreet Kaur

    Feature Writer, BusinessEx

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  • Jun 22,2020
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  • 334 Mins Read

Micro, small and medium-sized enterprises (MSME) industry is currently receiving constant aid from the government. After launching the Emergency Credit Line Guarantee Scheme for MSME borrowers, it is now being ensured that affected businesses are getting desired financial support from lending institutions. Further, assigned money under ECLGS scheme is strategically planned to be disbursed amongst the MSME borrowers by the lending institutions.

The Ministry of Finance has recently presented data on loans disbursed under the INR 3 lakh crore ECLGS scheme for the MSME segment that is badly impacted by the pandemic.

As per the ministry's data, the public and private sector in aggregate have disbursed INR 75,426 crore under 100 per cent ECLGS plan. 

The credit guarantee scheme is termed as the biggest fiscal part of the self-reliant India Mission package pronounced by the Finance Minister in the previous month.

RBI Move to Destress MSME Segment 

The central bank of India, Reserve Bank of India (RBI) asked lending institutions to assign zero per cent risk weight on credit facilities under ECLGS to MSME loan seekers, reported Business Insider.

Earlier in May, the Indian government initiated the ECLGS for offering 100 per cent guarantee coverage for additional working capital term loans via banks, as well as financial institutions, and additional term loans via non banking finance companies (NBFCs) up to 20 per cent of their entire outstanding credit up to INR 25 crore.

As credit facilities extended under the scheme guaranteed by NCGTC are supported by an unconditional and irreversible guarantee rendered by the Indian government.  It has been determined that member lending institutions shall assign zero per cent risk weight on the credit facilities extended under this scheme to the extent of guarantee coverage, the cited media agency reported quoting RBI's official statement

Lending institutions that can disburse loans under ECLGS scheme comprise of HFCs, NBFCs, banks and All India Financial Institutions (SIDBI, EXIM bank, NHB, and NABARD).  

Changes Demanded in MSME Sector     

A cohort of 25 MSME associations has requested the Indian government to increase coverage of the INR 3 lakh crore ECLGS plan. They also request to categorise grappling companies 'as fully dead, near dead, critically injured, minor impacted and no impact establishments for targeted policy action,' reported Business Today.  

"Those who are dead need honourable exit, those who are near dead require ventilator support. General treatment or solution can only be a First Aid and cannot yield permanent solution," K.E.Raghunathan, Convener of the Consortium of MSME associations told the cited media agency. 

The newly-formed MSME associations have made a series of propositions to the government, which are as follows: 

  1. They suggested slicing the income tax rates to 15 per cent for proprietors and partnership companies so as to support in the pandemic.  
  2. They advised goods and services tax (GST) exemption to small companies accounting upto INR 5 crore annual sales. 
  3. They put forward an idea to change eligibility criteria for collateral-free loans to cover all companies that had not been categorised as non-performing assets (NPAs) by banks. 
  4. They proposed that the emergency credit should be provided without banks demanding for additional documents. 

ECLGS presently comprises existing borrowers with outstanding credit limit of up to INR 25 crore as on 29 February 2020 and a turnover of up to INR 100 crore. Under the scheme, the borrowers are eligible for upto 20 per cent  of their entire outstanding loans as emergency credit line, according to the cited media agency. 

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