MSMEs rue banks exploiting them over collateral free loan scheme

Shivani Bhakoo
Tribune News Service
Ludhiana, August 3
MSME businesspersons while appreciating the Centre for establishing the Small and Medium Credit Guarantee Trust (CGTMS) to provide loans without guarantee to 7 crore micro and small businesspersons, have voiced concern that the banks, particularly the private ones, were exploiting them while giving loans.
Talking to The Tribune, FOPSIA president Badish Jindal said for providing these loans collateral free, the government had roped in 164 banks and financial institutions of the country. These include 12 public sector and 22 private sector banks, 45 non-banking financial companies, 10 small finance banks, 9 financial institutions and 6 foreign banks.
Under this scheme, the government charges a fee from the businesspersons and pays up to 85 per cent of the dues to the banks in case of non-payment.
Jindal added the banks and financial institutions have to bear just about 15 to 25 per cent of the dues in case of non-payment themselves.
“But these banks and financial institutions cleverly take a fixed deposit of up to 25 per cent from the customers against such loans, so that they do not suffer any loss in case the amount stands non-recoverable. On these fixed deposits, these banks pay nominal interest to the customers. They do not give any information about such deposits to the government,” Jindal said.
Banks often charge 15 to 20 per cent interest on such loans along with a Credit Guarantee Trust fee and secure their money. “Most private banks are not willing to provide these loans to the MSME’s,” said Jindal.
Lalit Shorey, senior vice-president, Oil Mill Manufacturers Association, here said the Finance Minister had increased the credit guarantee limit from Rs 5 crore to Rs 100 crore in the Budget, so that banks could give loans up to Rs 125 crore to MSMEs without guarantee. This decision was surprising because the MSMEs hardly needed such big amounts, Shorey added. “According to the new definition of MSME, the maximum limit of business for micro industries is Rs 5 crore and for small industries it is Rs 50 crore. So, making a provision for a loan of Rs 125 crore is superfluous. This will only promote corruption. As such, banks distance themselves from the MSMEs,” the industrialist added.
FOPSIA members have requested the government to order the banks to provide CGTSME loan to MSMEs at the benchmark lending rate.
Presently, of the total loans up to Rs 25 lakh, those to the MSMEs account for 47 per cent. The banks should be ordered to provide 80 per cent of the loans to the micro units in this bracket as the medium and large units could arrange the collateral for getting the advance from the banks, said Raman Gupta, another industrialist, adding that the maximum limit of CGTSME should be fixed at 5 crore as the banks and financial institutions might misuse the higher limit of Rs 125 crore.
The banks should be barred from forcing the customers to arrange fixed deposits for getting such loans, he said.

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