ECLGS: Micro firms get maximum loans from banks under credit guarantee scheme; medium units ‘bypassed’

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September 30, 2020 7:22 PM

Credit and Finance for MSMEs: Medium enterprises have benefitted least so far under the Modi government's Emergency Credit Line Guarantee Scheme (ECLGS) to revive Covid-hit MSMEs and other businesses.

Future-ready MSMEsNon-banking financial companies (NBFCs) witnessed the most significant increase in NPA ratio – to 9.7% in June 2020 from 5.8% in June 2019.

Credit and Finance for MSMEs: Micro enterprises have emerged as the biggest beneficiaries so far of the collateral-free loans disbursed by public and private sector banks and non-banking financial companies (NBFC) under the Modi government’s Emergency Credit Line Guarantee Scheme (ECLGS) to revive Covid-hit MSMEs and other businesses. According to a survey published by the National Institute of Bank Management, Pune in August involving responses from 1,722 MSMEs and other businesses, 86.53 per cent of total loans disbursed by public sector banks (PSB) have been given to micro businesses in comparison to 5.38 per cent loans to small businesses, 0.73 per cent to medium enterprises and 7.35 per cent to other businesses.

A similar pattern is visible in loans given by private banks and NBFCs. Micro units received 87.31 per cent of private banks’ loans followed by only 8.77 per cent, 0.72 per cent and 3.20 per cent going to small, medium and other businesses. 65.41 per cent share in NBFC loans were to micro-businesses. Small businesses, medium enterprises and other businesses had a share of 11.51 per cent, 0 per cent, and 23.08 per cent. Clearly, “medium enterprises appear to have been bypassed,” the survey titled Study on the Impact of ECLGS for National Credit Guarantee Trustee Company noted.

“Study on the impact of Emergency Credit Line Guarantee Scheme (ECLGS) by the National Institute of Bank Management shows that micro-enterprises are the biggest beneficiaries of the scheme,” Finance Minister Nirmala Sitharaman’s office tweeted on Wednesday.

Also read: CBDT: Payment gateways won’t have to pay tax on e-commerce transactions under this scenario

Banks, NBFCs had disbursed Rs 1,25,425 crore of the Rs 3 lakh crore of ECLGS as on September 21, 2020, to 25,74,181 MSME and individual accounts, according to the government data.  Out of the total disbursement, Rs 1,22,808 crore was credited into 25,24,788 MSME accounts, as per the data tweeted by the Finance Minister Nirmala Sitharaman’s office last Thursday. Moreover, loans to 49,393 individual accounts stood at Rs 2,617.08 crore.

The survey also noted that 87 per cent respondents said that the ECLGS had helped to ease their short term financial problems while 93 per cent found the loan process to be fairly easy. However, for MSMEs getting smaller loan loan, the short term liquidity benefit was relatively lower than those who had received a larger ECLGS loan. 33 per cent respondents getting loans between Rs 5 lakh-10 lakh claimed the liquidity ease would last more than three months while only 14 per cent of the respondents getting up to Rs 10,000 claimed the loan to help them with cash crunch beyond three months.

51 per cent of the respondents claimed deploying funds to restart operations while 50 per cent would use it to clear dues to suppliers. Another 36 per cent and 5 per cent said the funds will be used to pay salaries and repaying existing loans respectively. “In contrast (to manufacturing units), since services firms are less dependent on suppliers and workers, by design, their focus is on restart of operations,” the survey added.

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