Credit and Finance for MSMEs: Finance Minister Nirmala Sitharaman on Wednesday had announced collateral-free automatic loans worth Rs 3 lakh crore to MSMEs as part of the overall Rs 20 lakh crore Covid-19 relief package to uplift the economy.
Credit and Finance for MSMEs: 100 per cent credit guarantee cover by the government to banks and NBFCs on the principal and interest amount in lending to MSMEs will help banks save as much as Rs 30,000 crore, SBI said in its latest Ecowrap report on Thursday. Finance Minister Nirmala Sitharaman on Wednesday had announced the collateral-free automatic loans worth Rs 3 lakh crore to MSMEs as part of the overall Rs 20 lakh crore Covid-19 relief package to uplift the economy. “As lender will get 100% credit guarantee on principal and interest which will save capital of around Rs 25000 – Rs 30000 crore for banks (zero risk weights),” the report said.
“Whenever any exposure to a business is guaranteed or owned by the government, the risk weight for such asset is low. Hence, banks will be in a better position to lend much more of the same capital. Even banks, which have got very low capital, can lend freely. That’s the major incentive for this because many assets may not survive in a downturn. But if the lender is assured, then there is more comfort to finance businesses. However, we have to see whether there is a viable proposition to lend,” VG Kannan, Former Chief, Indian Banks Association told Financial Express Online.
Nirmala Sitharaman had announced up to 20 per cent of outstanding credit as on February 29, 2020, as an emergency credit line to businesses including MSMEs from banks and NBFCs. The outstanding bank credit to micro and small enterprises as on February 28, 2020, stood at Rs 10.95 lakh crore, as per the RBI’s April bulletin. According to the government 45 lakh MSME units will be able to resume business and safeguard jobs through this support. However, businesses having up to Rs 25 crore outstanding credit and Rs 100 crore turnover will be eligible to apply for the collateral-free loan scheme that can be availed till October 31, 2020.
“We believe that the system has liquidity, it is more of an underwriting issue with bankers, but with credit guarantee that will create more comfort in banking circles to lend,” Ashish Sharma, CFO of RBI-registered NBFC Aye Finance told Financial Express Online.
Around Rs 14 lakh crore was outstanding to the MSME sector (including medium enterprises). This “translates into Rs 2.80 lakh crore (20 per cent) immediate credit boost,” SBI said. Sitharaman had also announced a Rs 20,000-crore subordinate debt scheme for MSMEs which are NPAs or stressed accounts. Here, Rs 4,000 will be given by the government to the credit guarantee fund trust for micro and small enterprises (CGTSME) that will offer partial credit guarantee support to banks to lend to such MSMEs.