June 13, 2024


Delighting finance buffs

Retailers, small businesses not registered as MSMEs eligible for emergency credit

The Rs 3 lakh crore emergency credit borrowing scheme for Micro, Small and Medium Enterprises (MSMEs) announced by the govt on May 12 will also cover retailers and other businesses.

Retail businesses devastated by the 62-day lockdown have been declared eligible for the scheme, although they are not recognised or registered as MSMEs.

Finance ministry sources say that the inclusion covers members of the nearly seven crore strong trading community.

The emergency credit line facility provides 100 per cent guarantee coverage by National Credit Guarantee Trustee Company (NCGTC) to member lending institutions or MLIs on up to Rs three lakh crore to eligible MSMEs.

With the National Credit Guarantee Trust corporation or NCGTC releasing the guidelines for the scheme today, it has been clarified that MSMEs/business enterprises — constituted as proprietorships, partnerships, registered companies, trusts and limited liability partnerships (LLPs), and also interested borrowers under Pradhan Mantri Mudra Yojna or PMMY — would be eligible for the scheme.

The assistance under this scheme will come in the form of additional working capital through a term loan facility for eligible MSMEs and other businesses.

Credit under the scheme would be up to 20 per cent of the borrower’s total outstanding credit up to Rs. 25 crore, excluding off-balance sheet and non-fund based exposures, as on February 29, 2020, i.e., additional credit shall be up to Rs 5 crore.

Speaking to India Today TV, Confederation of All India Traders (CAIT) General Secretary Praveen Khandelwal, said, “The Covid-19 lockdown has seriously hurt the retail businessmen and traders. The losses over the last 60 days are estimated to be over 9 lakh crore and loss on GST is over Rs 1.5 lakh crore.“

CAIT estimates that before the pandemic struck, retail businesses had a daily turnover of over Rs 15,000 crore.

Khandelwal says that the losses are going to mount as revival is difficult.

“Only 5 per cent of the pre-Covid business is back after the easing of restrictions and only 5 per cent of the workforce is back. If the crisis continues by December, retail businesses would be in serious trouble.”

The Guaranteed Emergency Credit Line (GECL) facility was approved by the Union cabinet on May 22.

Retailers and wholesalers, as per the MSME ministry’s June 2017 Office Memorandum, did not figure in the eight activities in the “manufacture or production of goods or providing or rendering of services in accordance with section 7 of the Micro, Small and Medium Enterprise Development Act, 2006.”

MSME minister Nitin Gadkari during a series of interactions via video conference assured the trading community that the government would try to address the crisis faced by them via the inclusion of traders under the MSME sector as service providers.

What makes the new guarantee scheme attractive is the capped Interest rates at 9.25 per cent for banks, and at 14 per cent for NBFCs on loans provided for 4 years along with a 12-month moratorium.

This improves lending as banks levy interest between up to 17 per cent and NBFCs charge up to 30 per cent.

More on the scheme

The scheme would be applicable to all loans sanctioned under GECL during the period from May 23, 2020 to October 31 2020, or till an amount of Rs. 3 lakh crore is sanctioned under GECL, whichever is earlier.

The eligibility criteria for MSMEs under the scheme along with the Rs. 25 crore credit ceiling as on 29.2.2020 and an annual turnover of up to Rs 100 crore in FY 2019-20 are:

* The Scheme is valid only for existing customers on the books of the Lending institutions

* Borrower accounts should be classified as regular, SMA-0 or SMA-1 as on 29.2.2020. Accounts classified as NPA or SMA-2 as on 29.2.2020 will not be eligible

* The MSME borrower must be GST registered in all cases where such registration is mandatory. This condition will not apply to MSMEs that are not required to obtain GST registration.

* Loans provided in individual capacity will not be covered under the scheme.

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