FinMin circulates draft details of ₹3 lakh crore automatic loan scheme to MSMEs


The scheme will cover only existing borrowers with outstanding credit limit of upto₹25 crore as on 29 February 2020 and having a turnover of ₹100 crore



Finance Ministry has sent a draft circular to banks detailing the implementation of the collateral free automatic loans for businesses including micro, small and medium enterprises, according to a senior banker aware of the matter. The scheme was announced as part of the ₹20 trillion Atmanirbhar Bharat Abhiyan package to kickstart the economy following the covid-19-induced nationwide lockdown.


According to the draft circular received by banks, the ₹3 lakh crore scheme will include ₹2.8 lakh crore which will be available as automatic loans and the remaining ₹20,000 crore which will be made available as subordinate debt for stressed MSMEs.

Under the ₹2.8 lakh crore automatic loan scheme, banks can charge an interest of 9.25% on these loans whereas non-banking finance companies can charge upto 14%. The scheme will cover only existing borrowers with outstanding credit limit of upto ₹25 crore as on 29 February 2020 and having a turnover of ₹100 crore. It will also include borrowers with upto 60 days past due (DPD) and cover both working capital and term loans facilities.


The credit line with be 100% guaranteed by the government through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) and there will be no guarantee fee.


The ministry has sought feedback from banks on this scheme before it comes with the blueprint next week, said the banker cited earlier.


“The draft scheme looks good. We had received few queries from new customers. The draft has made it clear that the scheme is applicable only to existing customers and those with outstanding of ₹25 crore," he said.


The details of other schemes like the ₹30,000 crore special liquidity scheme for non-banking finance companies, housing finance companies and microfinance companies are still awaited.


“Operationalising the ₹20,000 crore subordinate debt scheme and ₹50,000 crore equity infusion could be the key. Main issues that need to be tackled is to come up with a consistent criteria, implementation body need to be fast moving and dynamic, and quick operationalization of the schemes as some of many of these MSMEs may not have the strength to wait for a long period," said Jindal Haria, director of financial institutions, India Ratings


Analysts believe that despite the implementation of these liquidity schemes, the package is likely to benefit the higher rated entities like AA and A, leaving the BBB companies starved for liquidity. They believe that banks will still be cautious investing in the bonds of these lower rated companies as the government guarantee is available only for first 20% of loss. The ₹45,000 crore partial credit guarantee scheme for NBFCs will be extended to primary issuance of bonds and commercial papers of NBFCs.


Similarly, the ₹30,000 crore special liquidity scheme includes only investments in investment grade papers which are hardly issued by lower rated NBFCs and MFIs. According to analysts, these companies have experience issuing Pass Through Certificates (PTCs) on their pooled assets.


“The 30,000 cr liquidity scheme could help especially NBFCs in the middle rating levels. There are two caveats here; whether pass through certificates would be included in addition to other market instruments and secondly, issuing these instruments, engaging with investment bankers for issuing the primary market could take time and some of the NBFCs may not have that luxury," said Haria.


Banks, NBFCs and HFCs are therefore awaiting fine print of the economic package to understand what could be the real impact on the sector


Source - LIVE MINT

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