Banking Article, Banking Finance 2021, Banking Finance May 2021


MSME Background


India is having the largest base of Micro, Small, and Medium Enterprises (MSMEs) in the world after China. The sector is engaged in the manufacturing of varied products – ranging from traditional to hi-tech items and provides a wide range of services.


According to the latest available Annual Report (2018-19) of the Department of MSMEs, there are 6.34 crore MSMEs in the country. Out of these, 51% of MSMEs are situated in rural India. Together, they employ a little over 11 crore people but 55% of the employment happens in the urban MSMEs.


The MSMEs in India play a crucial role by providing huge employment opportunities at comparatively lower capital cost as compared to large industries as well as through industrialization of rural & backward areas, inter alia, reducing regional imbalances, assuring more equitable distribution of national income and wealth.


MSME forms the backbone of the Indian economy and is one of the most important segments that let the economy grow by leap and bounds. The sector which provides employment to over 114 million people and contributes to more than 30 per cent of the GDP.


In terms of geographical distribution, the top 10 states together accounted for 74.05% of the total estimated number of MSMEs in the country. These are Uttar Pradesh (14.20%), West Bengal (14%), Tamil Nadu (8%), Maharashtra (7.60%), Karnataka (6%), Bihar (5.40%), Andhra Pradesh (5.30%), Gujarat (5.20%), Rajasthan (4.20%) & Madhya Pradesh (4.20%).

         (Source: Annual Report 2018-19, MSME, GOI)


With the government ‘Make in India’ push, along with a push to attract greater FDI, MSMEs sector is set for rapid growth and integration with major global value chains.


But one major problem is very low registration of MSME, as maximum units are operating as an unorganized sector. As per the National Sample Survey Office, Ministry of Statistics & Programme Implementation,  there are 633.88 lakh unincorporated non-agriculture MSMEs in the country engaged in different economic activities (196.65 lakh in Manufacturing, 0.03 lakh in Non-captive Electricity Generation and Transmission, 230.35 lakh in Trade and 206.85 lakh in Other Services). As per data only 137.62 lacs unit have registered themselves in the portal.


Registering as MSME will help these units to avail various benefits/scheme of the government from time to time. To encourage MSME registration in India, the ministry of MSME has notified a simple one-page registration form called ‘Udyog Aadhaar Memorandum’.

The entrepreneurs in the MSME sector can file the form online, and instantly get a unique Udyog Aadhaar Number (UAN). The information sought includes personal Aadhaar number, industry name, address of the business, bank account details, and other general information. Applicants can provide this information on a self-certification basis and do not need any supporting documents.



Benefits of Udyog Aadhaar/ MSME/ SSI Registration

  • Collateral Free Loans from Bank
  • Protection against delay in payment
  • Reservation policies to manufacturing/production sector
  • Reduction in rate of Interest from banks
  • Easy to get Licenses, approvals and registrations
  • 15% CLCSS subsidy. Octroi Benefits
  • Special consideration on international trade fairs.
  • Waiver in Security Deposit in Government- Exemption from payment of Earnest Money, Issue of tender sets free of cost, Waiver of Security Deposit up to the Monetary Limit for which at the unit is registered.
  • Concession in electricity bills
  • Waiver of Stamp Duty and Registration Fees
  • Reimbursement of ISO Certification
  • Exemption under Direct Tax Laws
  • 1% exemption on the interest rate on OD
  • Bar Code registration subsidy
  • Excise Exemption Scheme
  • Subsidy on NSIC Performance and Credit ratings
  • 50% subsidy for patent registration
  • Enterprises having MSME Registration are eligible for Industrial Promotion Subsidy (IPS)
  • Enterprises having MSME registration are eligible for Counter Guarantee from the Government of India through CGSTI



Present scenario


MSMEs are the most affected by this economic downturn, both sparked and accelerated by the Corona Virus pandemic, as they don’t have the buffers of the bigger firms or access to low-cost capital to help them tide over this period. With demand collapsing, and unlikely to rebound strongly in the near term, it will be increasingly difficult for these businesses to meet their obligations such as repayment of loans or wages to their employees.


The current Corona Virus pandemic (COVID-19) lockdown substantially disrupt the operations of these MSMEs due to their dependence on the cash-economy that is severely hit by the lockdown, the physical non-availability of workers, and restrictions in the availability of raw materials and transport infrastructure.



What next for MSME during COVID situation

In such a situation of crisis, where diseases like COVID-19 have stopped the working of the world and have affected the lives of people in various ways. MSME are the most affected due to series of Lockdown and lack of demand in the market. There are various schemes introduced by the government to support the businessmen so that they can continue with the work. These schemes will help them not only to improve business but also to provide them with support during the situation of such a crisis. The government of India has worked since the lockdown commenced on various issues. The government has taken initiative for small scale industries as well as for various firms and businesses.



Various benefits/schemes for MSME during COVID-19: MSME relief package

[As per Self-Reliant India Movement (Atmanirbhar Bharath Abhiyan) dated 13.05.2020]

Rs 3.00 lac crores Collateral-free Guaranteed pre-approved Loans for MSMEs

Businesses/MSMEs have been badly hit due to COVID-19. They need additional funding to meet operational requirements, buy raw material and restart business.


Accordingly, the Union Cabinet has approved additional funding of up to Rs. 3 lacs crore at a concessional rate of 9.25% through the Guaranteed Emergency Credit Line (GECL) for the MSME sector severely hit by the Corona Virus crisis. Details of the scheme are given below:


  • Under the scheme, National Credit Guarantee Trustee Company (NCGTC) will provide 100% guarantee coverage of the additional credit up to Rs. 3 lac scrore funded to eligible MSMEs and interested PMMY (Mudra) borrowers, in the form of a guaranteed emergency credit line (GECL) facility.
  • The scheme would be applicable to all loans sanctioned under GECL facility during the period from the date of announcement i.e. 13.05.2020, of the scheme to October 31 or till an amount of Rs 3 lacs crore is sanctioned under the scheme, whichever is earlier.
  • The scheme aims at mitigating the economic distress being faced by about 45 lakh MSMEs by providing them additional funding of up to Rs. 3 lakh crore in the form of a fully guaranteed emergency credit line



Eligibility & other details:


  • Credit Line to Businesses/MSMEs from Banks and NBFCs up to 20% of entire outstanding credit as on 29.2.2020, which were less than or equal to 60 days past due as on that date, i.e., regular, SMA- 0(Principal or interest payment not overdue for more than 30 days) and SMA-1(Principal or interest payment overdue between 31-60 days) accounts.
  • Borrowers with up to Rs. 25 crore outstanding and Rs. 100 crore turnover eligible
  • Additional Loans will have a tenor of 4 years with a moratorium of 12 months on Principal repayment
  • 100% credit guarantee cover from NCGTC.
  • No Guarantee Fee & no fresh Collaterals.
  • The scheme is aimed to benefit over 45 lakh MSME Units.
  • Maximum Banks/NBFCs are giving this additional loan to existing customers as a pre-approved loan based on certain criteria as advised by RBI.
  • Interest rates under the scheme will be capped at 9.25 per cent for banks and FIs, and at 14 per cent for NBFCs.


Rs. 20,000 crore subordinate debt for stressed MSMEs.


  • Equity support to stressed MSMEs-Government will support Stressed MSMEs with infusion of Rs. 20,000 crore equity support through Subordinate Debt.
  • Functioning MSMEs which are NPA or are stressed will be eligible.
  • Government to infuse Rs.4000 crore in Credit Guarantee Trust Fund for MSEs (CGTMSE), which will provide partial Credit Guarantee support to Banks.
  • Promoters of the MSME will be given debt by banks, which will then be infused by them as equity in the Unit.
  • More than 2 lakh MSMEs are likely to be benefitted.


Rs 50,000 cr. equity infusion for MSMEs through Fund of Funds (FoF)


  • For MSMEs facing a severe shortage of Equity.
  • Fund of Funds with Corpus of Rs. 10,000 crore will be set up.
  • It will provide equity funding for MSMEs with growth potential and viability.
  • FoF will be operated through a Mother Fund and few daughter funds
  • Fund structure will help leverage Rs. 50,000 cr. of funds at daughter funds level
  • It will help MSME to expand its size as well as capacity.
  • It will also encourage MSMEs to get listed on of Stock Exchanges.



New definition of MSMEs


Low threshold in MSME definition has created a fear among MSMEs of graduating out of the benefits and hence killing the urge to grow. Further, there has been a long-pending demand for revisions. Keeping in view the above factor and for the growth of MSME sector, GOI has revised the definition of MSME sector. Distinction between manufacturing and services MSMEs has been removed and Investment limits revised upwardly. Additional criteria for turnover have been also introduced.


Existing MSME Classification
Criteria: Investment in Plant & Machinery or Equipment
Classification Micro Small Medium
Mfg. Enterprises Investment < Rs. 25 lac Investment < Rs. 5 cr.


Investment < Rs. 10 cr.


Services Enterprise Investment<Rs. 10 lac


Investment < Rs. 2 cr.


Investment < Rs. 5 cr.


Revised MSME Classification
Criteria: Investment in Plant & Machinery or Equipment And Annual Turnover
Classification Micro Small Medium
Mfg. & Services Enterprises Investment < Rs. 1 cr.


Turnover < Rs.5 cr.

Investment < Rs. 10 cr.


Turnover < Rs.50 cr.

Investment < Rs. 50 cr.


Turnover < Rs.250 cr.

  This notification shall come into effect from 01.07.2020.


Global tenders shall be disallowed upto Rs. 200 crores. (As per MoF notification dated 15.05.2020)


  • MSMEs and other companies in India often faced unfair competition from foreign companies.
  • Therefore, in a major initiative, the union cabinet has disallowed Global tenders for Government tenders upto Rs. 200 crore to enable MSMEs to participate in the Government procurement process.
  • This will be a crucial step towards Self-Reliant India and support Make in India
  • This will also help MSMEs to increase their business.



Launch of ‘CHAMPIONS’ portal for MSME (
    (Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength)

In a major relief to address the grievances of MSMEs and to handhold them in growing larger, PM Narendra Modi on June 1st 2020 launched a technology platform ‘CHAMPIONS’, which will help in making the smaller units big by solving their grievances, encouraging, supporting, helping and handholding.

CHAMPIONS will help to grow MSME under this difficult situation with these objectives:-
i) Grievance Redressal: to resolve the issues of MSMEs including problems of raw materials, labour, finance, regulatory permissions etc particularly in the COVID created a difficult situation.

  1. ii) To help the MSMEs capture new opportunities including manufacturing of medical equipments and accessories like masks, PPEs etc and supply them in National and International markets.

iii) To identify and encourage the sparks: i.e. the potential MSMEs who are ready to withstand the present situation and may become national and international champions.

CHAMPIONS ( A single window solution for MSME



Other Initiatives to help MSMEs


  • MSMEs currently facing problems of marketing and liquidity due to COVID.
  • e-market linkage for MSMEs to be promoted to act as a replacement for trade fairs and exhibitions. To compensate for cancelled trade fairs, the government has planned set up online market linkages.
  • Fintech will be used to enhance transaction-based lending using the data generated by the e-marketplace.
  • Government has been continuously monitoring the settlement of dues to MSME vendors from Government and Central Public Sector Undertakings. Making it mandatory for the Departments of Government of India and the CPSEs to pay the receivables to MSMEs within next 45 days. This will greatly help easing the situation of working capital of the MSMEs.
  • The announcements that TDS and TCS will be reduced by 25% and that all refunds to entities including Proprietorship, Partnership firms and LLP etc. would be issued immediately, will also help the liquidity situation of MSMEs
  • Employee Provident Fund(EPF) support to the tune of Rs 2500 crore for Business & Workers for 3 more months. Under ‘Pradhan Mantri Garib Kalyan Package’ (PMGKP), payment of 12% of employer &employee contributions was made into EPF accounts of eligible businesses. Earlier this facility was provided for the months of March, April & May 2020. Now it has been extended for a further period of 3 months, i.e June, July & August 2020.
  • Further, in order to provide more take home salary to employees and also to give relief to employers in payment of Provident Fund dues, statutory PF contribution of both employer and employee has been reduced to 10% each from existing 12% each for all establishments covered by EPFO for next 3 months till Aug’20.
  • Due date of all income-tax return for FY2019-20 has been extended from 31st July, 2020 & 31st October, 2020 to 30th November, 2020 and Tax audit from 30th September, 2020 to 31st October, 2020.
  • SIDBI has also declared a concessional interest rate of 5% for MSME loans. This support is only given to those units who are delivering the products which are related to COVID-19.
  • RBI has launched Rs. 1,00,000 Crore Long Term Repo Operations, this will help banks increase the lending capacity at a low rate.
  • COVID-19 Start-up Assistance Scheme (CSS)- This scheme will provide finance for innovative business start-ups that will help to improve the role of this scheme to provide financial stability and finance for the business firms. The primary object of this scheme is to provide quick working capital for the next 45 to 90 days for a start-up.
  • The Vivaad se Vishwasscheme, addressing disputes on indirect tax payments, has been extended till December 31, 2020.

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