CREDIT GUARANTEE TO MSMEs IN SUPPORT OF ATMANIRBHAR BHARAT ABHIYAN

[Mr. M. GOVINDARAJAN]

Atmanirbhar Bharat Abhiyan

The expression ‘Atmanirbhar Bharat Abhiyan’ is Hindi words which means ‘Self reliant India’.  This scheme has been formulated by our Prime Minister Shri Narendra Modi and announced during COVID 19 pandemic.  This scheme is economic related package.  This scheme was launched on 12.05.2020.  The policies in this scheme are efficient, competitive and resilient, and being self-sustaining and self-generating. This scheme will not isolate India from other countries in the world but otherwise making India as more important global economy.

Focus of Atmanirbhar

¹Atmanibhar Bharat Abhiyan focuses mainly on the following-

• Economy;
• Infrastructure;
• System;
• Vibrant demography;
• Demand.

Phases of Atmanirbhar

¹The following are the phases of Atmanirbhar Bharat-

• Businesses including MSMEs;
• Poor including migrants and farmers;
• Agriculture;
• New horizons of growth;
• Government reforms and enablers.

MSMEs

The concept of Micro, Small and Medium Enterprises was incorporated in India by Micro, Small and Medium Enterprises Act, 2006.  In Indian economy the role of MSMEs is considered as vital since it contributes fairly to the Indian economy and creates more number of employments.  Almost 64 million units are registered under MSME Act.  The Table below shows the importance of MSMEs in Indian economy.

Year	MSME – Addition of gross value	Growth %	Total addition of gross value	Share of MSMEs in GVA (%)	Total GDP	Share of MSME in GDP (in %)
2011 - 12	2622574	-	8106946	32.35	8736329	30
2012 – 13	3020528	15.17	9202692	32.82	9944013	30.40
2013-14	3389922	12.23	10363153	32.71	11233522	30.20
2014 – 15	3704956	9.29	11504279	32.21	12467959	29.70
2015-16	4025595	8.65	12566646	32.03	13764037	29.20
2016-17	4405753	9.44	13841591	31.83	15253714	28.90

Source: Central Statistics Office (CSO), Ministry of Statistics & Program Implementation

Classification of MSMEs

The classification of MSMEs has been changed.  An enterprise shall be classified as a micro, small or medium enterprise on the basis of the following criteria-

• a micro enterprise, where the investment in plant and machinery or equipment does not exceed One crore rupees  and turnover does not exceed Five crore rupees;
• a small enterprise, where the investment in plant and machinery or equipment does not exceed Ten crore rupees   and turnover does not exceed Fifty crore rupees; and
• a medium enterprise, where the investment in plant and machinery or equipment does not exceed Fifty crore rupees   and turnover does not exceed Two fifty crore rupees.

Credit Guarantee

²A credit guarantee scheme provides third-party credit risk mitigation to lenders through the absorption of a portion of the lender's losses on the loans made to SMEs in case of default, typically in return for a fee.

³In order to support the MSMEs the Ministry of Micro, Small & Medium Enterprises (MSME), Government of India launched Credit Guarantee Scheme so as to strengthen credit delivery system and facilitate flow of credit to the MSE sector.    To operationalise the scheme, Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).   The CCGTMSE, one of the largest schemes, sanctioned about ₹ 45,000 crore of fresh guarantees in FY20.  

The below table shows the cumulative guarantee approved to MSMEs-

(in crores)

Sl. No.	Year	Cumulative Guarantee approved
1	2010	11560
2	2011	23846
3	2012	37139
4	2013	52600
5	2014	70026
6	2015	90446
7	2016	108991
8	2017	128787
9	2018	146829
10	2019	175961

Source: 19^th Annual Report – CGTMSE – 2018 – 19.

The National Credit Guarantee Trustee Company Ltd (NCGTC) also runs operations of five guarantee schemes set up by the government of India, prominent among these being the scheme for micro units (the Credit Guarantee Fund for Micro Units).

COVID 19

The prevailing COVID 19 is a great challenge not only to the Government but also to the business entities.  The economy of the country is very much slow down.  The employment rate is also reduced to some extent.  The business entities cannot survive because of the financial crunch.  The most affected is MSMEs.  GDP is expected to be contracted from 5% to 10%.  It is also expected a revenue loss of ₹ 5 to 7 lakh crores.  Giving loan by the banks in the present situation is considered by the banks that it will increase the NPA.

Emergency Credit Line Guarantee Scheme

The Finance Minister, to overcome COVID 19, has announced some details of the Atmanirbhar Bharat Abhiyan economic package. The main thrust of the announcements is to boost the Micro, Small and Medium Enterprises in the wake of COVID 19 in the form of a massive increase in credit guarantees. 

           The Government has unveiled the Emergency Credit Line Guarantee Scheme as part of the ₹ 20 lakh crore comprehensive package announced by Finance Ministry on 13.05.2020 for the support of MSMEs in view of COVID 19.   The Government has provided ₹ 3 lakh crore through this scheme to MSMEs.  The total outstanding loan to MSMEs by the banking and NBFC sector is around ₹ 16 to 18 lakh crore.  Assuming that 80% of these loans are working capital loans where there would be a 20% incremental funding needs, that gives an amount of approximately ₹ 3 lakh crore.  This scheme is expected to be helpful for 45 lakhs MSME units.

⁴Eligibility

• All MSME borrower accounts with continued outstanding loans of up to ₹ 25 crore as on 29.02.2020 and annual turnover of up to ₹ 100 crore for the financial year 2019 – 20 are eligible to avail the scheme.
• Total outstanding amount would comprise of the on balance sheet exposure.  Off balance sheet and non fund based exposures will be excluded.
• The scheme is available to MSMEs constituted as proprietorship, partnership, registered company, trusts and Limited Liability Partnerships.
• Loans under PMMY extended on or before 29.2.2020, and reported on the MUDRA portal shall be covered under the Scheme.
• Loans provided in individual capacity are not covered under this Scheme.
• The scheme is valid for existing customs on the books of the MLIs.
• The borrower accounts should be less than or equal to 60 days past due as on 29.02.2020 in order to be eligible under the scheme.  The borrower accounts which had NPA or SMA – 2 status, as on 29.02.2020 shall not be eligible under this scheme.
• MSME must be registered under GST laws in all cases where such registration is mandatory.
• It is not necessary that the existing loans of the borrowers should be covered under ECLGS of NCGST to become eligible under this scheme.

Credit limit

The credit limit under GECL would be up to 20% of the borrower’s total outstanding credit up to ₹ 25 crores, excluding off-balance sheet and non-fund-based exposure as on 29.02.2020 subject to the borrower meeting all the eligibility criteria.  The maximum limit is ₹ 5 crore.

Interest rate

External bench mark linked rates + 1% subject to a maximum of 9.25% per annum.

Government guarantee

The entire funding provided under this scheme shall be provided with a 100% credit guarantee coverage by NCGTC under the scheme.

Tenure

       The loans will have a tenure of 4 years and they will have a moratorium of 12 months (that is, the payback starts only after 12 months).  Interest shall, however, be payable during the moratorium period. The principal shall be repaid in 36 installments after the moratorium period is over.

Validity of the Scheme

The scheme is valid till 31.03.2021 or till an amount of ₹ 3 lakhs crore is sanctioned under this scheme by all banks/NBFCs, as notified by NGCTC, whichever is earlier.

Charges

There is no processing charges for processing, no pre-payment penalty and there is no guarantee fee payable to credit guarantee trusts.

⁵Pre-approved loan

This is a pre-approved loan. An offer will go out from the MLI to the eligible borrowers for a pre- approved loan which the borrower may choose to accept. If the MSME accepts the offer, it will be required to complete requisite documentation. Thus, an ‘opt-out’ option will be provided to eligible borrowers under the Scheme, i.e., if the borrower is not interested in availing the loan, he/she may indicate accordingly.

⁶Disbursements

The Finance Ministry said banks have sanctioned loans of about ₹ 1,87,579 crore to 50.7 lakh business units under the ₹ 3 lakh crore Emergency Credit Line Guarantee Scheme for the MSME sector impacted by slowdown caused by the corona virus pandemic as on 8^th October, 2020.  Of this, about 27 lakh MSME units received cumulative disbursement of ₹ 1,36,140 crore till October 5.   The said disbursements are made by 12 public sector banks, 24 private sector banks and 31 non banking financial companies.

State Bank of India said it has disbursed ₹ 8,700 crore under the ₹ 3-lakh crore Emergency Credit Line Guarantee Scheme for the MSME sector.

⁷Other measures

• There is a subordinate debt scheme, worth ₹ 20,000 crore, which will allow loans to MSMEs that were already categorized as “stressed”, or struggling to pay back.
• In this case, the government’s guarantee is not full, but partial.
• The third measure is the creation of a fund with a corpus of ₹ 50,000 crore to infuse equity into “viable” MSMEs, thus helping them to expand and grow.
• The government intends to put in ₹ 10,000 crore and get others, possibly institutions like LIC and SBI, to fund the remaining amount.
• Then there is a change in the definition of an MSME that was pending for long. Now MSMEs are judged on turnover and there will be no difference between a manufacturing MSME and services MSME.

Impact

          ⁸The National Institute of Bank Management, Pune made a study on the impact of this Scheme.  According to this report the scheme has been well received by the MSMEs and it has helped them immensely for restarting the business post lock down and for paying salaries to their employees/workers, settling the bills to the suppliers and so on. It helped in keeping their business afloat and retains their employees/workers to a great extent.  However it is felt that completing the formalities of documentation was quite difficult due to the fact that the customers had to visit the bank branches for execution of documents and banks had to visit the sub-registrar’s office which led to delay in disbursing the loan and in some cases the customers did not want to avail the GECL due to this.

The MSMEs have given the following suggestions to this scheme-

• Loan amount should be increased ;
• Rate of interest should be reduced;
• ECL amount should have been based on CC Limit;
• Moratorium should be extended for interest also;
• Awareness about the scheme should be increased;
• The GECL should be offered online;
• Interest should be less or should be waived off for the moratorium period.

References:

1. https://www.india.gov.in/spotlight/building-atmanirbhar-bharat-overcoming-covid-19.
2. www.google.com.
3. https://www.cgtmse.in/Annual%20Reports/Annual_Report-Eng-030220(18-19).pdf.
4. www.eclgs.com.
5. www.cibil.com.
6. www.thehindu.com.
7. https://www.civilsdaily.com/news/credit-guarantees-to-msmes-what-are-they-and-how-will-they-help/
8. Study on the impact of EGLGS for National Credit Guarantee Trustee Company – National Institute of Bank Management, Pune – 26.08.2020.
9. https://en.wikipedia.org/wiki/Atmanirbhar_Bharat.