Budget 2024: Finance Minister Nirmala Sitharaman in her budget speech on Tuesday said the government will launch a new scheme to enable collateral-free term loans for MSMEs in manufacturing sector to buy machinery and equipment.
Sitharaman said the scheme will operate on pooling of credit risks of such MSMEs.
“For this, a separately constituted self-financing guarantee fund will provide, to each applicant, guarantee cover up to Rs 100 crore, while the loan amount may be larger,” the minister said.
The MSME borrower will have to provide an upfront guarantee fee and an annual guarantee fee on the reducing loan balance.
Moreover, Sitharaman also announced that public sector banks will lead the development of a new credit assessment model based on the scoring of digital footprints of MSMEs in the economy.
“This is expected to be a significant improvement over the traditional assessment of credit eligibility based only on asset or turnover criteria. That will also cover MSMEs without a formal accounting system,” the minister said.
For MSME accounts in SMA (special mention account) stage, the finance minister announced continued credit support to such enterprises through a guarantee from a government-promoted fund. The aim is to help MSMEs continue to operate their business and avoid getting into the NPA category.
According to government data, the gross NPAs in MSME loans by scheduled commercial banks had dropped by 14.3 per cent to Rs 1.31 lakh crore for FY23 from Rs 1.54 lakh crore during FY22, FE Aspire had reported.
GNPAs in MSMEs jumped to Rs 1.83 lakh crore in FY20 from Rs 1.63 lakh crore in FY19 and declined to Rs 1.82 lakh crore in FY21 before shrinking to Rs 1.31 lakh crore in the previous fiscal.
Sitharaman, however, didn’t increase the NPA classification period which has been among the key asks from the MSME sector. The sector had called for expanding the current 90-day limit for classifying over dues by MSMEs into NPAs to 180 days in order to provide additional time for MSMEs to repay the amount.