The government is set to make changes in the Emergency Credit Line Guarantee Scheme (ECLGS) to enable lending to individual entrepreneurs, who comprise a large chunk of the over 6.3 crore MSMEs across the country. As of June 26, banks have sanctioned loans to 30.11 lakh MSMEs and disbursed it to 11.21 lakh such enterprises — which is roughly 4.75 per cent and 1.77 per cent, respectively, of total 6.33 crore MSMEs in the country.
Industry sources said nearly 80-90 per cent of the MSMEs entrepreneurs such as truck owners, agriculture equipment owners, taxi drivers or shop owners — are not registered as MSMEs and take business loans in their individual capacity, who are currently not eligible for additional lending under this scheme. The National Credit Guarantee Trustee Company Ltd (NCGTC), which runs the ECLGS, is learned to have approved changes in the scheme making various individual entrepreneurs eligible for additional lending, sources said.
Official data shows that banks have sanctioned loans worth over Rs 1.01 lakh crore as of June 26, 2020, of which more than Rs 45,860 crore has been disbursed. Under the ECLGS scheme, banks are offering up to Rs 3 lakh crore of government-guaranteed loans — an extra 20 per cent of outstanding loans to their MSME borrowers that are non-NPA. First time borrowers, individual borrowers and NPA accounts cannot raise funds under the scheme.
With individual entrepreneurs — such as truck, taxi owners — comprising over 80 per cent of the total MSMEs in the country, their inclusion the in emergency lending scheme will cover a large number of micro enterprises facing difficulties as their cash flows have been severely hit due to the pandemic.
“This is a serious issue and clarification is still awaited. There are 63 million MSMEs in India and more than 90 per cent of them, they take loan in their personal names, (like) a truck driver, or a small shopkeeper, or a taxi driver, or agriculture equipment owner — they will not form a firm and register it separately and then start the business. They will take loan in their own name and take a loan,” said Sanjay Chamria, vice-chairman & MD at Magma Fincorp.
The scheme makes individuals ineligible, due to which of our 2.36 lakh customers, 2.25 lakh individual customers are not able to get additional loans, he said at an MSME event organised by FICCI via a video link Friday. “We believe a clarification is on the way, but that has not come in (so far),” he said. Under the scheme, interest rate of banks and financial institutions have been capped at 9.25 per cent per annum, while Non-Banking Financial Companies can lend at maximum of 14 per cent per annum. SBI MD CS Setty said the lender has received guidance from NCGTC that it is making necessary clarification that individual borrowers are also eligible under the scheme.
All MSME borrower accounts with combined outstanding loans across of up to Rs 25 crore as on 29.2.2020, and annual turnover of up to Rs 100 crore in FY 2019-20, are eligible under the scheme. In an interaction with Finance Minister Nirmala Sitharaman on June 25, senior members of the Chennai International Centre had pointed out that nearly two third of MSME borrowers are individuals including truck owners. Responding to these comments, Sitharaman had said: “I think we are very close to give that opportunity to include individuals too in this NCGTC scheme.”
Setty said SBI’s outreach has been significant as 7.5 lakh eligible customers were contacted for additional lending and 5.26 lakh of them have been sanctioned loans, he said. The SBI disbursement rate has been at 75 per cent, as Rs 15,000 crore (out of Rs 20,000 crore sanctioned amount) have been disbursed under the scheme.
“From bank’s point of view, this (scheme) is an enabler for me in saving my existing exposure because the company is going to be in the business,” he said, indicating that the facility will help prevent NPA spike in existing loans by ensuring that MSMEs are able to withstand adverse effects of the Covid-19 pandemic.
Various MSME associations and industry chambers have suggested the government to make individual entrepreneurs also eligible borrowers under the scheme. Bankers expect disbursements under the scheme to rise significantly with the inclusion of individual borrowers, who have taken loans for income earning assets.