Lukewarm response to MSME scheme: Government wants bankers to be more aggressive

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With the Rs 3 lakh crore emergency credit guarantee loan scheme yet to take off, the government is pushing hard to make the scheme work.

The Finance Ministry on June 9 did a review of the scheme's progress so far in a meeting with senior bank officials. The MSME ministry is likely to have a webinar with state level banking committees (SLBC) officials as early as June 10.

Till now, about Rs 20,000 crore has been sanctioned under the emergency credit line guarantee scheme (ECLGS).  The actual disbursal figure may be even less as all borrowers may not avail the sanctioned amount. The government wants public sector banks to be more aggressive to drive the scheme.

According to bankers, no specific targets have been given to banks but all banks are asking their branch level officers to explore all eligible borrowers.

"We have been asked to call up all eligible borrowers under the scheme and make them aware about the loan availability under this scheme," said an official of a public sector bank on condition of anonymity.

Also Read | FM Sitharaman reviews progress of Rs 3 lakh crore credit guarantee scheme for MSMEs

According to the scheme details, existing MSME borrowers will get 20 percent of their outstanding loan amount, as on February 29, as additional funds. The government has offered full guarantee for the scheme. This was part of the Rs 20 lakh crore economic package.

Muted response so far

MSME loan scheme has not received a big response among borrowers, many of whom do not want to take additional loan in times of a crisis and poor demand scenario. “They already have a loan. Why would they take more to add to their repayment burden,” said the banker quoted above.

Also Read | Starved for funds, startups register as MSMEs for government support: Report

MSMEs are worried about the business scenario. While the additional loan could add to their interest payment burden, the business revival in Covid-19 scenario remains risky. The nationwide lockdown announced on 24 March lasted over two months impacting the operations of all companies. MSMEs are worst hit.

According to a survey by the All India Manufacturers’ Organisation, about 35 percent of MSMEs and 37 percent of self-employed businesses have started closing their businesses.

Poor demand

A 20 percent limit over the current outstanding would mean many MSMEs will get only a small amount. Small MSME borrowers typically avail Rs2 lakh to Rs 10 lakh.  In those cases where outstanding amount is small, the eligible amount will be even lower.

This amount will be not enough for MSMEs to revive business from the Covid-scenario. They needed help to pay up salaries, tax incentives and, more importantly a demand boost on the ground.

Bankers are also worried about future NPAs arising out of such accounts. They fear these loans could backfire and their lending decisions will be questioned at some point.

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