The Union Cabinet on Monday approved additional funding of up to ₹3 lakh crore to micro, small and medium enterprises (MSME) that was announced by Finance Minister Nirmala Sitharaman last week as part of the ₹20 lakh crore economic package.
Under the scheme, 100% guarantee coverage will be provided by National Credit Guarantee Trustee Company Limited (NCGTC) to eligible MSMEs and interested borrowers of the MUDRA scheme, in the form of a Guaranteed Emergency Credit Line (GECL) facility, the government said.
The tenure of loan under this scheme will be four years with a moratorium period of one year on the principal amount. No guarantee fee will be charged by NCGTC. Interest rates on loans extended by banks and financial institutions will be capped at 9.25%, and 14% for those extended by non-banking financial companies (NBFCs). The scheme would be applicable to all loans sanctioned under GECL till October 31, or till an amount of ₹3 lakh crore is sanctioned, whichever is earlier.
“For this purpose, a corpus of ₹41,600 crore shall be provided by the Government of India, spread over the current and the next three financial years,” the government said.
“All MSME borrower accounts with outstanding credit of up to ₹25 crore as on February 29, 2020, which was less than or equal to 60 days past due as on that date, i.e., regular, SMA 0 and SMA 1 accounts, and with an annual turnover of up to ₹100 crore, would be eligible for GECL funding under the Scheme,” the government said.
However, bankers said that since the government is not giving a direct guarantee, this may not solve the ‘risk averse’ issue that the lenders are facing.
“It is like the CGTMSE [Credit Guarantee Fund Trust for Micro and Small Enterprises] scheme. The claims will not be settled unconditionally. Questions will be asked… they may like to see the loan appraisal process once a claim is made when the borrower defaults,” an official from a public sector bank said.
Since the scheme is not directly guaranteed by the government, banks still have to attach a risk weight of 20% for the loans. And, if the claim is not settled, banks have to make provision in line with the age of default. Bankers said they may approach the Reserve Bank of India to allow them not to attach any risk weight.
“The government would probably issue a letter of comfort and based on that this corporation will issue guarantees and then when guarantees devolve, that is when banks will make a claim, which is likely in the next two to three financial years; so defaults will happen [over] a period of time. And, the budgetary impact will be spread over a period of time,” the chief executive of a government-owned bank said.
Among other proposals approved by the Cabinet on Wednesday was a subsidy of almost ₹3,110 crore for distribution of extra foodgrains to about eight crore migrant workers and their families.
The Cabinet also approved a new centrally-sponsored scheme to support micro food processing units at an outlay of ₹10,000 crore, the expenditure being shared by the Centre and the States on a 60:40 basis.
The scheme will be implemented over a five-year period and will benefit about two lakh self-help groups, farmer producer organisations and other small units through a credit-linked subsidy, providing money for working capital and tools, a marketing grant, skills training and technical upgrade.
It also approved the Pradhan Mantri Matsya Sampada Yojana, a scheme announced in the 2020 Budget, to develop the fisheries sector over a five-year period.
Of the total investment of ₹20,050 crore, the Centre will spend ₹9,407 crore, the States ₹4,880 crore while beneficiaries themselves will have to invest about ₹5,763 crore. The Cabinet Committee on Economic Affairs also approved the adoption of a new methodology for the auction of coal and lignite blocks on a revenue-sharing basis. The tenure of coking coal linkage was increased to 30 years.
It will also permit commercial exploitation of coal-bed methane in the mining lease area. Rebates in revenue share payments will be given in the event of an early production of coal from the mine. Further rebates will be offered for gasification of coal to encourage environment-friendly actions.