Credit and Finance for MSMEs: Finance Minister Nirmala Sitharaman on Thursday announced that Covid-hit small businesses will get 2 per cent interest subvention on loans up to Rs 50,000 secured under the Mudra scheme’s Shishu cover. The interest subvention will be provided to prompt payees for a period of 12 months. The total relief amount — under the subvention to Shishu loanees making regular payments — will be Rs 1,500 crore. The current portfolio of Shishu loans under the Mudra scheme is around Rs 1.62 lakh crore, according to Sitharaman. Pradhan Mantri Mudra Yojana (PMMY) was launched in April 2015 to give Rs 50,000 – 5 lakh worth loans under the Kishor cover and Rs 5 lakh – Rs 10 lakh under the Tarun cover apart from the Shishu cover to non-corporate, non-farm small or micro enterprises.
“While this is a welcome move but Rs 50,000-loan bracket will largely include micro-entrepreneurs who will try to stabilize themselves for around next 12 months as there will be a huge demand and supply imbalance ahead. While the monthly interest amount might not be much but it would still be difficult for micro-entrepreneurs to pay. Instead, the government should have reduced the interest rate on Mudra loans to 4-5 per cent or maximum 6 per cent. Also, the moratorium by the RBI should be extended till March next year,” Pankaj Kumar, National President, Indian Industries Association (IIA) told Financial Express Online. IIA represents around 8,000 MSMEs across India.
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“Small businesses won’t be able to make regular payments for the loans they have taken for the next few months. They are already facing existential crisis with no revenues and complete lack of demand. However, it would be important to see eventually how many MSMEs are supported under the package announced by the government (on Wednesday) and in how much time. Only if executed properly, can MSMEs make repayments,” an independent small business expert told Financial Express Online.
The announcement by Sitharaman came a day after six MSME-centric relief measures were announced to boost liquidity and ease Covid impact. Among the key announcements was up to 20 per cent of entire outstanding credit offered by banks and NBFCs to MSMEs with upto Rs 25 crore outstanding credit and Rs 100 crore turnover. The minister had also announced special package of Rs 20,000 crore as subordinate debt for MSMEs declared as NPAs or those stressed. The government will also provide Rs 4,000 crore to CGTMSE that will offer partial credit guarantee support to banks for lending to MSMEs.
The minister had also revised the MSME definition from investment in plant and machinery or equipment based to a mix of investment and turnover. This is suitable “because of the introduction of GST. Under the new tax regime, turnover details of enterprises are being captured by Goods and Services Tax Network and turnover declared by GST registered MSME units can be easily verified through GSTN,” SBI said in its latest Ecowrap.