Oasis in the Desert – The MSME schemes
As a relief to the economic impact of COVID-19, under the Atma nirbhar Bharat Abhiyan., MSME schemes are announced and disbursed to large extent. These are like the oasis in the desert and not just the Mirage that usually they are. Banks and Financial institutions are mandated to disburse under these. A couple of our known clients have received them.
Let’s look into what it is?
In the first tranche, for micro, small and medium enterprises (MSMEs), was provided under three Schemes.
- Collateral free loans
- Stressed MSME
- Equity Infusion
1. Collateral free Loans
Total of ₹3-lakh crore has been allocated for MSMEs benefit.
The Cabinet approved additional funding through the Emergency Credit Line Guarantee Scheme (ECLGS) for the MSME sector hit hard during this COVID
The entire funding provided under GECL shall be provided with a 100% credit guarantee by NCGTC to MLIs under ECLGS
Almost 45 lakh MSMEs are expected to gain from this proposal.
|Name of scheme||Guaranteed Emergency Credit Line (GECL)|
|Purpose||To meet their immediate operational liabilities and restart their business|
|Type of customers||Most of the banks are providing to their existing customers, (i.e New customers & transfer/take over loans are not allowed)|
|Loan||Extension of Working Capital Term Loan to the extent of 20% of Max|
|Eligibility||Combined outstanding loans across all Banks/ FIs of up to ₹ 25.00 Crore (excluding off-balance sheet and non-fund based exposures) as on 29.02.2020 and Annual turnover of up to ₹ 100.00 Crore for FY 2019-20 Loans covered under Pradhan Mantri Mudra Yojana (PMMY) on or before 29.02.2020 and reported on the MUDRA portal are also eligible|
|Eligible Entity||Proprietorship, Partnership, Registered Company, Trusts and Limited Liability Partnerships (LLPs) & PMMY borrowers.|
|GST Registration||The borrowers must be GST registered in all cases where such registration is mandatory. However, this condition will not apply which are exempted from GST registration.|
|Ineligibility||Borrower accounts which had NPA status as on 29.02.2020 are not eligible (Borrower accounts should be less than or equal to 60 days past due as on 29th February, 2020) Loans provided in individual capacity are not covered under the Scheme. Loan taken by promoter or director in personal capacity shall not be covered.|
|Loan Amount||Loan upto 20% of the total outstanding loans of eligible borrowers up to ₹ 25.00 Crore as on 29th February, 2020 i.e. loan amount maximum of ₹5.00 Crore, subject to the borrower meeting all other the eligibility criteria. Separate account will be opened for this credit facility. In case a borrower has loans with multiple lender, the scheme can be availed either through one lender or multiple lenders.|
|Rate of Interest||9.25% for Bank & 14% for NBFC|
|Moratorium||One year on the principal amount alone, however Interest to be paid even during moratorium period|
|Repayment||The principal shall be repaid in 36 instalments after the moratorium period is over|
|Security||Extension of Charge on entire present and future current assets of the firm/ company shall be done within three months disposal of the loan amount The additional WCTL granted shall rank pari passu with the existing credit facilities in terms of cash flows and security, with charge on the assets financed under the Scheme to be created within a period of three months from the date of disbursal|
|Guarantee||No additional collateral / Guarantee shall be obtained for additional funding under the scheme. However, additional funding under the scheme will be secured through Guarantee Coverage from NCGTC.|
|Charges||No Guarantee Fee shall be charged from the borrower for the Credit facilities provided under the Scheme., Processing fees & Documentation fees are nil|
|Validity||The Scheme would be applicable to all loans sanctioned under GECL during the period from the date of issue of these guidelines by NCGTC to 31.10.2020, or till an amount of Rs 3,00,000 crore is sanctioned under the GECL, whichever is earlier|
2. Stressed MSME scheme & Equity Infusion Scheme details of parameter, norms & conditions are yet to notified
3. Apart from the above scheme’s general benefits:
- The change in Threshold limit in MSMEs has been introduced, for both manufacturing & service sector, Investments and turnover exceeds
|Investment||< 1 ₹ Crores||< 10 ₹ Crores||< 50 ₹ Crores|
|Turnover||< 5 ₹ Crores||< 50 ₹ Crores||< 250 ₹ Crores|
- Earlier, the criteria for manufacturing units and service units were different. Now those distinctions between Manufacturing and Service MSMEs are being removed.
- Global tenders will be banned for government procurement up to Rs 200 crore, the same will be granted to Indian MSMEs.
- The E-market linkage for MSMEs will be promoted to act as a replacement for trade fairs and exhibitions.
- The receivables from government(s), PSUs, central CPSEs, state PSUs and private sector -all release their outstanding payment to MSMEs within 45 days.
- In addition to overcome the delays in payments to MSMEs due to disputes all pending GST refunds should be cleared immediately.
Most borrowers are availing the facility considering that it shall help in triggering the stalled rotation of funds in the business. Yes, it will ease out the supplier payments, stock refilling and handling operational payments. Temporary cash flow infusion is like the ventilator that gives breathing support, the business owner however has to strengthen the lungs, through exercise and medication to ensure long term sustenance of cash flows.
Have clear visibility of the timelines of repayment of these and make sure that enough profitability and cashflows can be arranged and business doesn’t have to borrow for repayment of these. In the long term, the businesses which have availed these have to ensure good amount of growth in terms of sales and cashflows to justify this decision.
Relook at past decisions, make appropriate corrections and move forward with confidence and opportunistic outlook.