Budget 2023: Restart 2% interest subvention scheme for MSMEs, says PHD Chamber | The Financial Express

Budget 2023: Restart 2% interest subvention scheme for MSMEs, says PHD Chamber

Ease of doing business for MSMEs: The 2 per cent Interest Subvention Scheme was announced by the MSME Ministry in November 2018 for interest relief on loans up to Rs 1 crore.

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PHDCCI also asked for extending the Interest Equalisation Scheme for pre and post-shipment Rupee export credit to service exporters as well.

Ease of doing business for MSMEs: Industry body PHD Chamber of Commerce or Industry (PHDCCI) on Wednesday in its pre-budget memorandum to the government suggested a number of measures around exports, loan repayment and loan restructuring, and credit to support MSMEs. The chamber asked for the revival of the 2 per cent Interest Subvention Scheme for all GST-registered MSMEs. The scheme was in force till March 31, 2021. The MSME Ministry had announced the scheme back in November 2018 to provide interest relief to MSMEs on their outstanding fresh/incremental term loan/working capital to the extent of Rs 1 crore.

The chamber also suggested the government to reconsider the 90-day period for MSMEs to repay their loans to 180 days. “The working cycle of MSMEs in many cases extends much beyond the 90-day period, thereby MSMEs struggle to receive timely payments from their buyers, and end up defaulting on loans in multiple cases. The limit should be increased to 180 days,” the chamber said in its memorandum. According to the mandate by the Reserve Bank of India (RBI), loans can be classified as NPAs if they are overdue by more than 90 days.

Also read: Budget 2023: What small businesses want from FM Sitharaman to address delayed payment issue

Importantly, for the financial year 2021-22, banks had reported gross non-performing assets (GNPA) worth Rs 1.17 lakh crore in the priority sector credit to micro and small enterprises (MSEs) in comparison to Rs 1.28 lakh crore in FY21, according to the data from the Reserve Bank of India’s (RBI) Report on Trend and Progress of Banking in India for FY22. The share of MSE GNPAs out of total NPAs for banks was 16.87 per cent in FY22 and 16.47 per cent in FY21. 

PHDCCI also recommended extending the restructuring of loans facility introduced on August 21, 2020, to restructure existing loans without downgrading the current asset classification further to enable MSMEs to cope with the post-pandemic recovery. The same facility was discontinued on 30 September 2021.  

Also read: Budget 2023: MSME body suggests OTS for entrepreneurs looking to exit their loss-making units

According to December 2022 Financial Stability Report by RBI, the share of restructured loans in the MSME portfolio of banks dropped to 5.21 per cent as on September 30, 2022, compared to 5.31 per cent as on March 31. The outstanding balance in the restructured account as of September-end last year was Rs 1.07 lakh crore in comparison to Rs 1.06 lakh crore as of March end 2022 with the highest share of public sector banks. 

The chamber also sought an extension of the Interest Equalisation Scheme for pre and post-shipment Rupee export credit to service exporters, which represent almost 40 per cent of total exports. The memorandum said the scheme is currently extended to manufacturers and merchant exporters only. Importantly, the central bank in March last year had extended the scheme’s validity till March 2024 to boost outbound shipments. 

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First published on: 04-01-2023 at 19:25 IST