Rs 20k cr subordinate debt for MSME NPAs: This many loan accounts identified; disbursement in progress

Credit and Finance for MSMEs: Rs 20,000 crore subordinate debt scheme for stressed MSMEs, which was announced in May by the Modi government and operationalized in August, has started to identify eligible loan accounts for disbursement. So far, 8,502 stressed or non-performing asset (NPA) MSME accounts have been identified by the State Bank of India, and the disbursement process is already in progress, the Ministry of Finance said on Sunday sharing the progress of various schemes under the Atmanirbhar Bharat packages. The scheme was finalised on June 24, 2020, as part of the Rs 3.7-lakh-crore MSME package under the Rs 20-lakh-crore stimulus for the Atmanirbhar Bharat campaign.

The scheme targeted to benefit 2 lakh operational MSMEs, which are stressed and have turned NPA as of April 30, 2020. Such MSMEs are eligible to secure credit equivalent to 15 per cent of their stake (equity plus debt) in the business or Rs 75 lakh whichever is lower. Entrepreneurs or promoters would have to infuse the credit in the business as equity to improve liquidity and maintain the debt-equity ratio, according to the MSME Ministry. While 90 per cent of the guarantee support for the credit will be under the scheme, the remaining 10 per cent would be contributed by MSMEs. The scheme provides a 7-year moratorium for businesses to pay the principal amount. The maximum repayment period would be 10 years.

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Importantly, the Cabinet had approved the distressed assets fund of Rs 4,000 crore and Fund of Funds with a corpus of Rs 10,000 crore to support MSMEs, MSME Minister Nitin Gadkari had said in June. The distressed fund was part of the Rs 20,000 crore subordinate debt scheme. The government will provide Rs 4,000 crore support to the CGTMSE to provide partial credit guarantee support to banks, to lend to MSMEs. The minister had said that 6 lakh MSME loan accounts were restructured till March 21 and another 25 lakh were likely to get restructured till December 31, 2020.

Meanwhile, the MSME NPA ratio increased to 12.8 per cent in June 2020 up from 11.4 per cent in June 2019, according to TransUnion Cibil’s MSME Pulse report in October 2020. Private banks’ MSME NPA ratio went up to 5.8 per cent in June 2020 from 4.6 per cent in June 2019 while for public banks, the ratio increased to 18.6 per cent in June from 17.5 per cent in the year-ago period. On the other hand, NBFCs saw a 9.7 per cent jump in the NPA ratio from 5.8 per cent in June last year.