Public sector banks which are on an overdrive to sell loans under the government’s Rs three lakh crore package for micro, small and medium enterprises (MSME) before the October 31 deadline have sanctioned an average of Rs 3.75 lakh per borrower to over 8.54 lakh borrower accounts in the last fortnight.
With the government offering a guarantee on loan repayments, many banks have started holding virtual town hall meetings and activating their zonal offices for suitable customers to meet the October 31 deadline. Some banks have already issued pre-approved sanction letters to all eligible MSME customers under the risk-free Emergency Credit Line Guarantee Scheme (ECLGS) at a time when the overall credit offtake is sluggish. Total sanctions by PSU banks till June 12 were Rs 32,049 crore. Total sanctions would be higher as private banks, including HDFC Bank, are also in the field offering the loan package. Disburals were Rs 16,031 crore to 4.23 lakh borrowers till June 12. After a lukewarm start, private banks are slowly stepping up their MSME business following a meeting of Finance Minister Nirmala Sitharaman with private banks and NBFCs recently.
As per Central Bank of India MD and CEO Pallav Mohapatra, the bank is aiming to cover all eligible accounts by July 31, 2020, much ahead of the given deadline of October 31, 2020. The bank has identified over two lakh MSME units eligible under the scheme. “All the eligible borrowers were issued pre-approved sanction letters. Within 12 days of launch of the scheme, the bank could sanction loans to 62,952 borrowers involving an amount of Rs 1162 crore and disbursed Rs 544 crore,” Mohapatra said.
SBI said it has sanctioned GECL loans aggregating Rs 15,000 crore to 1.5 lakh MSME customers and disbursed loans worth Rs 8,700 crore. “SBI organised more than 125 E-town hall meetings from May to date. As per directives of DFS, SBI conducted circle level meetings to reach out to MSME customers and explain the various reliefs and financial support provided to them to fight the Covid-19 outbreak. These meetings witnessed participants of around 3000 MSME customers,” SBI said.
Bank of Baroda had said it can lend up to Rs 12,000 crore under the ECLGS. “The particular portfolio (MSME) amounts to Rs 58,000 crore. So, 20 per cent of that would be around Rs 10,000 crore to Rs 12,000 crore. This, we can make available to our MSME clients in the times to come under the guaranteed scheme of the government,” BoB MD and CEO Sanjiv Chadha recently said.
Sluggish credit demand, bad loans worry banks
The RBI package has come at a time when demand for credit is muted and thousands of units have downed their shutters. With lockdown and demand slump in the economy hitting big and small borrowers, they are waiting for the economy to revive. Rating agencies have already cautioned about a rise in bad loans when the loan moratorium period ends in August.
According to SBI, borrower accounts should be less than or equal to 60 days past due as on February 29, 2020 in order to be eligible under the scheme. Borrower accounts which had NPA, or SMA-2 status, as on February 29 are not eligible under the scheme. In order to be eligible, the borrower must be GST registered in all cases. “Loans provided in individual capacity are not covered under the scheme. The government should allow individuals to apply for the scheme. There’re a large number of individual borrowers who are involved in the small business,” said an official of a private bank.
Banks are aggressively pricing the loans under the external benchmark linked (repo) lending rate. A major factor that’s preventing some of the banks, especially private banks, in going full throttle in the MSME loans is the possibility of defaults. Credit information firm TransUnion Cibil has said loans worth Rs 232,000 crore of MSMEs is at a higher risk of going into non-performing assets (NPAs). The NPA rate for MSMEs has increased continuously over last few years to reach 12.6 per cent as of December 2019, Cibil said in a report.
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