Unregistered SMEs, Retailers Also Eligible For Rs 3 Lakh Cr Emergency Loan From Govt (Details Here)

Unregistered SMEs, Retailers Also Eligible For Rs 3 Lakh Cr Emergency Loan From Govt (Details Here)
Unregistered SMEs, Retailers Also Eligible For Rs 3 Lakh Cr Emergency Loan From Govt (Details Here)

The finance ministry on May 12 announced that it will allow Rs 3 lakh crore emergency credit borrowing scheme for Micro, Small and Medium Enterprises (MSMEs).

This relief package will also cover retailers and other businesses. The Covid-19 lockdown has brought a stop to many businesses and enterprises. Consequently, such businesses devastated by the 62-day lockdown have now been declared eligible for the scheme, even though they are not recognised as MSMEs.

NCGTC Ensures 100% Coverage

This inclusion covers members of a strong family of nearly seven crore trading community.

  • This emergency credit line facility provides 100% guarantee coverage by the National Credit Guarantee Trustee Company (NCGTC).
  • The NCGTC ensures this 100% guarantee to member lending institutions (MLIs), of upto Rs 3 lakh crore to eligible MSMEs.

The National Credit Guarantee Trust corporation just yesterday released the guidelines for the scheme and has clarified that those MSMEs/business enterprises referred to and constituted of:

  • Proprietorships
  • Partnerships
  • registered companies
  • trusts
  • limited liability partnerships (LLPs), along with
  • interested borrowers under the Pradhan Mantri Mudra Yojna

would be eligible for this relief package scheme.

Outstanding Credit of Upto Rs 25 Crore?

Speaking of in what ways this scheme shall help the ones in need, the assistance provided by this scheme will be presented in the form of additional working capital through a term loan facility for eligible MSMEs and other businesses.

 The credit under this scheme would be upto 20% of the borrower’s total outstanding credit, which would result up to Rs. 25 crore. This amount will be exclusive of the off-balance sheet and non-fund based exposures, as on February 29, 2020.

This means that the additional credit shall be up to Rs 5 crore.

CAIT’s View over this Scheme

The Confederation of All India Traders (CAIT) General Secretary Praveen Khandelwal has stated that the Covid-19 lockdown has seriously hurt the retail businessmen and traders.

He has also provided the information that over the past 60 days, the losses recorded and estimated have been over 9 lakh crore and loss on GST is over Rs 1.5 lakh crore.

CAIT estimates that before the pandemic struck, retail businesses had a daily turnover of over Rs 15,000 crore. Khandelwal predicts looking at the ongoing condition that the losses are going to mount, as revival is difficult.

Khandelwal says:

  • After restrictions were eased by the government during the lockdown period, the sector has revived only 5% of the pre-Covid business,
  • With only 5% of the workforce being back to work.
  • If the crisis continues by December, retail businesses would be in serious trouble.

The Guaranteed Emergency Credit Line (GECL) facility was approved by the Union cabinet on May 22.

Highlights of this Scheme

According to the MSME ministry’s June 2017 Office Memorandum, the retailers and wholesalers did not figure in the eight activities in the “manufacture or production of goods or providing or rendering of services in accordance with section 7 of the Micro, Small and Medium Enterprise Development Act, 2006.

However, Nitin Gadkari, the MSME minister gave his assurance to the trading community that the government would try to address the crisis, by including the traders under the MSME sector as service providers.

He did this over a series of interactions via video conference.

The key pointer of this new guarantee scheme is the fact that the interest rates are capped at:

  • 9.25% for banks,
  • 14% for NBFCs on loans provided for 4 years, along with a
  • Moratorium period of 12 months.

This improves lending as banks levy interest between up to 17% and NBFCs charge up to 30%.

More Info on this Scheme

This scheme will apply to all loans sanctioned under GECL, from May 23, 2020 to October 31 2020, or till an amount of Rs. 3 lakh crore is sanctioned under GECL, whichever of the two conditions is earlier.

The eligibility criteria for MSMEs under the scheme, along with the Rs. 25 crore credit as on 29.2.2020, with an annual turnover of up to Rs 100 crore in FY 2019-20 are:

  • It is valid only for the existing customers of lending institutions.
  • The borrower accounts should be classified as regular, SMA-0 or SMA-1 as on 29.2.2020. 
  • The accounts classified as NPA or SMA-2 as on 29.2.2020 will not be eligible, under the scheme.
  • Wherever GST registration is mandatory, the MSME borrower must be GST registered.
  • Those loans, which are provided in individual capacity, shall not be covered under the scheme.
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