COURTESY TOI AUG 3

Most MSMEs not eligible for Centre’s credit scheme
Vibhor.Mohan@timesgroup.com

Chandigarh:

For the Centre’s much-hyped Emergency Credit Line Guarantee Scheme, only 12 % of Punjab’s nearly 15 lakh micro, medium and small enterprises (MSMEs) were found eligible by banks. Even among those approached, 25% have either opted out or are yet to respond.

According to figures available till July 18, almost 19% eligible borrowers have opted out of the scheme, and another 6% are yet to respond. As a result, merely 7% of the total MSMEs so far can avail the scheme, which is on till October.

RBI Chair at Centre for Research in Rural and Industrial Development (CRRID) Prof Satish Verma said, “While the scheme has been widely touted to benefit the cash-strapped, functional, indebted MSMEs, a huge proportion have either opted out or not responded. It raises doubts about the scheme’s structural design. As it is, Punjab’s share, Rs 3 lakh crore, comes to a minuscule 1.44%.”

The credit scheme is part of the Rs 20-lakh-crore financial stimulus package announced by the Union finance minister on May 13. It promises to provide collateral-free, government-guaranteed, and pre-approved working capital term loan to the enterprises that were non-NPA as on February 29, 2020.

Verma points out, the problem lies with the fact that the loan facility amounts to 20% of the combined outstanding loans of the enterprise. However, only the enterprises with up to Rs 25 crore outstanding loans and Rs 100 crore turnover are eligible to avail it. Essentially, the scheme is intended to infuse liquidity into small enterprises to enable them to meet outstanding bills and ensure uninterrupted supply line of raw material.

“Importantly, many enterprises have been reeling under financial stress for quite a long period and may have accumulated NPA loans over time. On the other hand, the enterprises that somehow managed their own resources seem to have been doubly penalised; first for getting accommodation from informal sources, which have their own costs, and second for being ineligible for the loan available under the scheme at lower rate of interest. Still, slowdown can be a reason for some eligible borrowers opting out,” added Verma.

“Making loans collateral free has been touted as an incentive for eligible enterprises under the scheme. In reality, however, the loan is not collateral free. Rather, it is a loan without additional collateral. Third, the government-guaranteed feature of the loan should incentivise banks to extend loans liberally. On the contrary, it is alleged that intensive documentation is undertaken by banks while sanctioning the loan as the banks too have a share in default rate.”

“The conditions for availing the scheme were not exciting for most units and that is why it has failed to generate the expected response. The Centre should have been more liberal in extending benefits to MSMEs that have been struggling with finances,” said the owner of a medium-sized unit in Amritsar