MSME body CIMSME to RBI’s Shaktikanta Das: Extend ECLGS 1.0 repayment period to 5 years post moratorium

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June 08, 2021 9:32 PM

The government had last month extended the ECLGS 1.0 moratorium period -- wherein MSMEs had to repay only interest -- from one year to two years while the period for repayment of principal amount and interest was three years.

The government’s plan, as outlined in the Union budget for 21-22, is to create an ARC and an AMC to take over and resolve bad loans.The government had announced additional assistance of up to 10 per cent of the outstanding credit as of February 29, 2020, to borrowers covered under ECLGS 1.0 as per the RBI guidelines.

MSME body Chamber of Indian Micro, Small & Medium Enterprises (CIMSME) in a letter the Reserve Bank of India Governor Shaktikanta Das has urged for extending the repayment period under the Emergency Credit Line Guarantee Scheme (ECLGS) 1.0 to five years from three years after the moratorium period. The government had last month extended the ECLGS 1.0 moratorium period — wherein MSMEs had to repay only interest — from one year to two years while the period for repayment of principal amount and interest was three years. Moreover, CIMSME also asked for allowing the extended repayment period to be applicable to all MSMEs who had availed credit under ECLGS 1.0 instead of restricting it to borrowers who are eligible for loan restructuring as per RBI guidelines dated May 5, 2021.

“ECLGS catered to MSMEs’ daily expenses. Amid Covid, the cost of production has increased due to increased time for raw material procurement because of limited transportation facilities and also for the conversion of raw material to finished product. Further lack of labour, end-use of ECLGS for fixed expenses instead of working capital have also hit MSMEs’ profitability. Hence, MSMEs won’t be able to generate enough cash to repay this credit in three years after the moratorium period,” Mukesh Mohan Gupta, President, CIMSME, which represents over 1 lakh MSMEs, told Financial Express Online.

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The government had also announced last month additional assistance of up to 10 per cent of the outstanding credit as of February 29, 2020, to borrowers covered under ECLGS 1.0 as per the RBI guidelines. “The repayment period under the ECGL scheme should be increased to five years as MSMEs have little business and are operating at a very low capacity whereas overheads and raw material cost have increased substantially especially in the case of steel. The raw material cost has also practically doubled and other overheads have also increased. The cost of production has increased due to higher oil prices, safety implementations of personnel due to Covid and lack of availability of skilled labour because most of the skilled personnel have either gone to their hometown or are not available,” Kanal Gupta, Director, United Drilling Tools Financial Express Online.

The association added that borrowers’ accounts which were restructured in terms of RBI’s Circular dated August 06, 2020, February 11, 2020, or January 01, 2019, should be given another one-time opportunity for restructuring without downgrading of asset classification, considering the two consecutive waves of Covid-19. “It is completely impossible for a restructured account to remain standard when there is a second state-imposed lockdown of 60 days and counting as there will be no cash flow during this period,” Rakesh Bajaj, Managing Director, Innovative Textiles told Financial Express Online. CIMSME also urged for a centralised loan application portal for the Subordinate Debt Scheme launched by the government last year as part of the Atmanirbhar package. According to the association, out of Rs 20,000 crore provision under the scheme, only about Rs 30 crore has been disbursed so far.

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