Banking Article, Banking Finance 2021, Banking Finance August 2021

New Horizons in MSME For Atmanirbhar Bharat

Preface:

The Micro, Small & Medium Enterprises have been contributing significantly to the various sectors of Indian economy. These are said to be the ‘Engine of Economic Growth’. As per Central Statistics Office (CSO), the contribution of MSME Sector in country’s Gross Domestic Product and export is around 28.90% and 48% respectively and generated about 110 million employments.

Micro, small and medium enterprise is the sector which was already reeling under huge distress firstly because of demonetization, then because of GST followed by the prolonged economic slowdown and finally, the biggest of all – the COVID-19 which is going to aggravate the crisis in this specific sector further. The Covid-19 outbreak has brought the globalised world to a standstill. India’s economy has taken a massive financial hit during the lockdown imposed to prevent the spread of the corona virus.

During COVID, the Government of India has announced relief measures called ‘Atmanirbhar Bharat Package’ for many sector along with MSMEs and also changes the definition of MSME for immediate boost up of economy. The same is welcomed by the industrialists and all the citizens affected by pandemic. Some steps taken by Government of India to boost the MSME sectors which are as under:

  1. MSME New Definition- Important Features:
  • There will be no distinction between Manufacturing and Service enterprises under new norms of MSMEs.
  • If an enterprise crosses the ceiling limits in either of the two criteria of investment or turnover, it will cease to exist in that category and be placed in the next higher category. All units with GSTIN listed against the same PAN shall be collectively treated as one enterprise.
  • The value of P& M or Equipment for all enterprises shall be written down Value (WDV) as at the end of the Financial Year as defined in the Income Tax Act. Exports of goods or services or both, shall be excluded while calculating the turnover of any enterprise for the purposes of classification.
  • In case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, an enterprise will maintain its prevailing status till expiry of one year from the close of the year of registration.
  • In case of reverse-graduation of an enterprise, the enterprise will continue in its present category till the closure of the financial year and it will be given the benefit of the reclassification with effect from 1st April of the financial year following the year in which such change took place.
  • All enterprises are required to register online and obtain ‘Udyam Registration Certificate.
  • Udyam Registration:
  • It is implemented from July 1, 2020. New entrepreneur intends to establish an enterprise should file Udyam registration online in the Udyam Registration portal on a declaration basis. Aadhar is mandatory for registration at portal.
  • All existing enterprises registered under UAM (Udyog Aadhar Memorandum) should register again on the Udyam Registration portal with PAN and GST details before March 31, 2021.
  • Only one UDYAM registration can be generated with single Aadhar. It is being integrated with PAN and GST network. Udyam Registration is being integrated with GeM, TReDS, Samadhan portals also.
  • On registration, an enterprise will be assigned “‘Udyam Registration Number” and an e-certificate; “Udyam Registration Certificate” shall be issued.
  • Udyam registration is free of cost and compulsory to – various schemes and benefits
  • Champions Control Rooms, offices of the MSME-DI, DIC shall act as Single Window Systems for facilitating the registration process and further handholding the MSMEs in all possible manner.

  1. Guaranteed Emergency Credit Line & Emergency Credit Line Guarantee Scheme:
  • The Government of India in April 2020 launched the Guaranteed Emergency Credit Line (GECL) for which 100% guarantee would be provided by National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs).
  • This loan is being extended in the form of additional WCTL in case of SCBs and FIs, and additional TL in case of NBFCs, to all eligible MSMEs who were standard / SMA 0/ SMA 1 as on 29.2.2020. This is applicable for existing customer only.
  • Credit under GECL would be up to 20% of the borrower’s total outstanding credit up to Rs. 50 crore, excluding off-balance sheet and non-fund based exposures, as on 29th February, 2020, i.e., additional credit shall be up to Rs. 10 crore. (The annual turnover upto ₹250 crore)
  • Business loans availed in the name of individuals are also eligible.
  • The tenor of loans provided under GECL shall be four years from the date of disbursement including principal moratorium of one year.
  • The Rate of interest should be as per one of the RBI prescribed external benchmark linked rates +1% (maximum of 9.25% for banks and FIs. For NBFCs, cap at 14 %).
  • Bank to open a separate loan account distinct from the existing loan account(s) of the borrower.
  • Government of India through NCGTC launched Emergency Credit Line Guarantee Scheme (ECLGS). To offer 100% guarantee to GECL extended by all MLIs without any guarantee fee. The guarantee would be applicable to all loans sanctioned under GECL during the period from May 23, 2020 to 31st October, 2020, or till an amount of Rs. 3 lakh crore is sanctioned under GECL, whichever is earlier.
  • ECLGS will be available to new facility sanctioned under GECL, even if existing loans of the borrower are not guaranteed under any of the schemes. Banks can give zero risk weights to the extent of guarantee coverage.

 

  1. Credit Guarantee Scheme for Subordinate Debt (CGSSD):
  • To provide relief to MSMEs reeling under the impact of the Covid-19 pandemic, Government of India created the Distressed Assets Fund – Subordinate Debt Scheme to provide equity support for financially stressed MSMEs.
  • Under this scheme, promoters of the MSME will be provided debt by banks, which will then be infused by promoters as equity in the MSME Unit.
  • The distressed Asset Fund is part of the Rs 20,000 crore subordinate debt announced by the Government of India as part of the economic package.
  • The government will provide Rs 4,000 crore support to the CGTMSE which will give partial credit guarantee support to banks, to lend to MSMEs.
    • Eligible MSMEs :
  • Standard as on 31.03.2018 & Stressed MSMEs viz. SMA2 and NPA as on 30-04-2020.
  • Regular operations, either as standard accounts, or as NPA accounts during 2018-19 and 2019-20 and should be eligible for restructuring (as per RBI guidelines)
  • Maximum amount eligible :
  • Equal to 15 % of total stake in the entity (equity plus debt) or ₹ 75 lakh whichever is lower as per last audited Balance Sheet.
  • Extent of Guarantee coverage :
  • 90 % Guarantee fee : 1.50 % p.a
  • Duration of the scheme:
  • 10 years (Principal moratorium upto 7 years).
  • Scheme applicable up to March 31, 2021 or till an amount of ₹ 20,000 crore of guarantee amount is approved.
  • MSME account where the legal / recovery proceedings are underway are also eligible if found viable as per RBI’s restructuring guidelines.
  • If MSME has existing limits with more than one lender, credit facility can be availed by the MSMEs through one lender only with suitable declaration regarding the arrangement.
  • The credit facility will be covered under guarantee even if the borrowers other loans are not covered under any of the guarantee schemes such as CGFMU or CGTMSE.
  • To lodge a claim, the guarantee in respect of that credit facility should have been in force at the time of account turning NPA and after completion of lock-in period of 18 months.
  • CGTMSE guaranteed portion to be assigned zero risk weight, as per extant guidelines.

  1. Equity infusion for MSMEs through Fund of Funds:
  • Government of India proposed a mother fund (₹ 10000 cr) which will invest in VC/PE firms which in turn will invest in commercially viable MSMEs in meeting their growth requirements.
  • The scheme is expected to facilitate equity financing of Rs.50, 000 crore in the MSME Sector.
  • The fund is created mainly to address the problem of shortage in growth capital for MSMEs, and to encourage funds through venture capitalists and Private Equity Firms.
  • All MSMEs are eligible and apply through Investor Funds on-boarded and registered with proposed Fund of Funds
  • Fund of Funds aims to achieve private funding leverage through the use of professional fund managers.

  1. Interest Subvention Scheme for MUDRA – Shishu Loans:
  • The Scheme was introduced in February 2019 to encourage MSMEs to onboard the GST platform. Extended up to March 31, 2021.
  • Udyog Aadhar is not compulsory for units eligible for GST.
  • An interest relief of 2% p.a., on the outstanding balance of new or incremental term loan and /or working capital loan up to ₹ 1 crore sanctioned by eligible institutions is available.
  • SIDBI is nodal agency for the scheme. Interest subvention available only for standard accounts.

  1. PM Street Vendor’s AtmaNirbhar Nidhi (PM SVANidhi):

This Scheme is launched to facilitate street vendors to access affordable working capital loan for resuming their livelihoods activities after easing of lockdown.

 

Objectives

(i) To facilitate WC loan up to 10,000 at subsidized rate of interest.

(ii) To incentivize regular repayment of loan

(iii) To reward digital transactions.

Salient Feature

  • The Scheme is available to all street vendors engaged in vending in urban areas as on or before March 24, 2020. Initial working capital of up to ₹ 10,000.
  • Interest subsidy on timely/ early repayment @ 7% is applicable in this scheme. Besides that monthly cash-back incentive on digital transactions.
  • If customer repays the loan on timely or early then he will be eligible for taking higher loan. The Scheme shall be implemented up to March, 2022.

Conclusion:

After the lockdown in the country, all the industry came to a halt, due to which the MSMEs sector suffered a lot. A number of steps were taken by the government through the Atmanirbhar- Bharat Campaign to overcome the stress of the sector.

Certainly, due to the steps taken by the government, not only many MSMEs have come out of stress but many MSMEs have started getting their old performance. Recently, GDP data of September quarter has shown positive in manufacturing sector. From which it appears that the steps taken by the government through Atmanirbhar-Bharat Campaign have started showing positive effect in Indian Economy.

The contribution of banks in making the move of the Atmanirbhar-Bharat Campaign taken by the government cannot be underestimated. Banks have a very important contribution that made the government’s campaign towards MSMEs become successful.

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