Cabinet approves Rs 3 lakh crore emergency credit line for MSME; loans at 9.25% rate

New Delhi, May 20

The Union Cabinet on Wednesday approved additional funding of up to Rs 3 lakh crore at a concessional rate of 9.25 per cent through the Emergency Credit Line Guarantee Scheme (ECLGS) for the MSME sector hit hard by the coronavirus crisis.

 The ECLGS was the second-biggest component of Rs 21 lakh crore comprehensive package announced by Finance Minister Nirmala Sitharaman last week.

Under the scheme, 100 per cent guarantee coverage will be provided by National Credit Guarantee Trustee Company (NCGTC) for additional funding of up to Rs 3 lakh crore to eligible MSMEs and interested MUDRA borrowers, in the form of a guaranteed emergency credit line (GECL) facility, an official statement said.

For this purpose, a corpus of Rs 41,600 crore shall be provided by the Government of India spread over the current and the next three financial years, it said.

 The Cabinet headed by Prime Minister Narendra Modi also approved that the scheme would be applicable to all loans sanctioned under GECL Facility during the period from the date of announcement of the scheme to October 31 or till an amount of Rs 3 lakh crore crore is sanctioned under the GECL, whichever is earlier.

 The ECLGS has been formulated as a specific response to the unprecedented situation caused by COVID-19 and the consequent lockdown, which has severely impacted manufacturing and other activities in the MSME sector, the release said.

 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.

The main objective of the scheme is to provide an incentive to member lending institutions (MLIs) like banks, financial institutions (FIs) and non-banking financial companies (NBFCs) to increase access to, and enable availability of additional funding facility to MSME borrowers, in view of the economic distress caused by the COVID-19 crisis, by providing them 100 per cent guarantee for any losses suffered by them due to non-repayment of the GECL funding by borrowers.

 With regard to eligibility, it said, all MSME borrower accounts with outstanding credit of up to Rs 25 crore as on February 29 which were 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 Rs 100 crore would be eligible for GECL funding under the Scheme.

The amount of GECL funding to eligible MSME borrowers either in the form of additional working capital term loans (in case of banks and FIs), or additional term loans (in case of NBFCs) would be up to 20 per cent of their entire outstanding credit up to Rs. 25 crore as on February 29, 2020.

The entire funding provided under GECL shall be provided with a 100 per cent credit guarantee by NCGTC to MLIs under ECLGS, it said, adding, tenor of loan under Scheme will be four years with moratorium period of one year on the principal amount.

No Guarantee Fee shall be charged by NCGTC from the member Lending Institutions (MLIs) under the scheme and interest rates under the scheme will be capped at 9.25 per cent for banks and FIs, and at 14 per cent for NBFCs.   In view of the critical role of the MSME sector in the economy and in providing employment, the proposed scheme is expected to provide much needed relief to the sector by incentivising MLIs to provide additional credit of up to Rs 3 lakh crore to the sector at low cost, thereby enabling MSMEs to meet their operational liabilities and restart their businesses, it said.

By supporting MSMEs to continue functioning during the current unprecedented situation, the scheme is also expected to have a positive impact on the economy and support its revival, it added.

NBFCs

The Union Cabinet also gave a nod to launch a special liquidity scheme worth Rs 30,000 crore for stressed non-banking financial companies and housing finance companies, whose financials further deteriorated due to COVID-19 crisis.

This is a post facto approval from the Cabinet as the scheme was announced as part of the first tranche of the Rs 21 lakh crore comprehensive economic package.

It was announced in the Budget 2020-21 that a mechanism would be devised to provide additional liquidity facility to NBFCs/HFCs over what is provided through the Partial Credit Guarantee Scheme (PCGS), an official statement said.

“This facility would supplement the liquidity measures taken so far by the government and RBI. The scheme would benefit the real economy by augmenting the lending resources of NBFCs/HFCs/MFls,” it said.

NBFC and HFC sectors came under stress following a series of defaults by group companies of IL&FS in September 2018.

The statement further said an SPV would be set up to manage a Stressed Asset Fund (SAF) whose special securities would be guaranteed by the government and purchased by the Reserve Bank of India (RBI) only, it said.

The proceeds of sale of such securities would be used by the SPV to acquire short-term debt of NBFCs/HFCs, it said, adding, the scheme will be administered by the Department of Financial Services, which will issue the detailed guidelines.

The direct financial implication for the government is Rs 5 crore, which may be the equity contribution to the Special Purpose Vehicle (SPV), it said.

Beyond that, there is no financial implication for the government until the guarantee involved is invoked.

 “However, on invocation, the extent of government liability would be equal to the amount of default subject to the guarantee ceiling. The ceiling of aggregate guarantee has been set at Rs 30,000 crore, to be extended by the amount required as per the need,” it said.

 Sharing further details, it said, a large public sector bank would set up an SPV to manage a stressed asset fund which would issue interest bearing special securities guaranteed by the government, to be purchased by RBI only.

 The SPV would issue securities as per requirement subject to the total amount of securities outstanding not exceeding Rs 30,000 crore to be extended by the amount required as per the need.

The securities issued by the SPV would be purchased by RBI and proceeds thereof would be used by the SPV to acquire the debt of at least investment grade of short duration (residual maturity of up to 3 months) of eligible non banking financial companies (NBFCs) or housing finance companies (HFCs), it said.

Unlike PCGS, which involves multiple bilateral deals between various public sector banks and NBFCs, requires shadow banks to liquidate their current asset portfolio and involves flow of funds from public sector banks, the proposed scheme would be a one-stop arrangement between the SPV and NBFCs without having to liquidate their current asset portfolio.

The scheme would also act as an enabler for the NBFC sector to get investment grade or better rating for bonds issued, it said, adding, the scheme is likely to be easier to operate and also augment the flow of funds from the non-banking sector.

Fisheries

The Cabinet also a  scheme to bring about a blue revolution through sustainable and responsible development of the fisheries sector with a total estimated investment of Rs 20,050 crore in the next five years—an scheme that Finance Minister Nirmala Sitharaman had announced in the Budget in February.

Of the total investment under the ‘Pradhan Mantri Matsya Sampada Yojana’ (PMMSY), the central share would be Rs 9,407 crore, state share of Rs 4,880 crore and beneficiaries’ share of Rs 5,763 crore, an official statement said.

 The central scheme will be implemented for five years from 2020-21 to 2024-25 fiscal.

The objective of PMMSY is to create direct employment opportunities to 15 lakh people in the sector, double income of fish farmers and workers by 2024 besides addressing the critical gaps in the fisheries sector and increase fish production to 22 million tonne by 2024-25 through sustainable and responsible fishing practices.

The scheme will focus on creating critical infrastructure including modernisation and strengthening of value chain and improve availability of certified quality fish seed and feed, traceability in fish and including effective aquatic health management.

It will give a boost to investments in the fisheries sector and increase the competitiveness of fish and fisheries products.

According to the government, the PMMSY will be implemented as an umbrella scheme with two separate components namely Central Sector scheme (CS) and Centrally Sponsored Scheme (CSS).

Under the Central Sector Scheme, the entire project and unit cost will be borne by the central government.

In case there are direct beneficiary oriented activities undertaken by the government entities like National Fisheries Development Board (NFDB), the central assistance would be up to 40 per cent of the project cost for general category people and 60 per cent for backward caste people and women.

However under the Centrally Sponsored Scheme, non-beneficiary oriented project costs will be shared between the centre and state. The centre will provide 100 per cent funding for projects undertaken in union territories, but in hilly states it would be in the ratio of 90:10, while for other states 60:40.

For beneficiary oriented projects, the funding will be limited to 40 per cent of the project cost for general category and 60 per cent for backward caste people and women. For which, the fund will be shared in the ration of 90:10 for hilly states, 60:40 for other states and 100 per cent for union territories, it added. PTI