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Govt's bank guarantee release move sees limited success; highway developers get relief, MSMEs complain

FM Sitharaman, while announcing relief measures under Atmanirbhar Bharat package, said that government agencies would partially release bank guarantees, to the extent contracts are partially completed, to ease cash flows

Nirbhay Kumar | October 22, 2020 | Updated 19:27 IST
Govt's bank guarantee release move sees limited success; highway developers get relief, MSMEs complain
Nirmala Sitharaman, Union Finance Minister

Key Highlights

  • Highway developers have benefitted from government's announcement to release bank guarantee to the extent of contracts completed but MSMEs yet to get relief
  • Finance Minister Nirmala Sitharaman had in May said that government agencies would partially release bank guarantees, to the extent contracts are partially completed, to ease cash flows
  • FISME says the intent of the government is appreciable but ways need to be found to operationalise the scheme
  • The small and medium enterprises have suggested bank guarantee should be required in parts so that depending on the extent of supplies made they are released

The government's move directing its agencies to release bank guarantee to the extent of contracts completed seems to have met with limited success with several suppliers especially among the crucial MSME sector complaining of not getting any relief so far.

While multiple highway developers told BusinessToday.In that bank guarantees had been released by National Highway Authority of India (NHAI) in proportion to the works completed, many MSME suppliers to central power utilities and Indian Railways are waiting for their response.

"The Ministry of Road Transport and Highways (MoRTH) and NHAI have been supporting in easing the cash flow situation. Bank guarantee has been released in our case which has helped us a lot," said Vinod Kumar Agarwal, Managing Director, G.R. Infraprojects Ltd.

Agarwal said that performance bank guarantee is about 5-10% of the total project cost and deposited after signing the agreement for executing the project.

At least three other private highway developers also said their bank guarantee had been released.

Two vendors of the Indian Railways said they had written to the national transporter and were awaiting release of the bank guarantee. One of them said that large contractors were learnt to have received back the bank guarantee. Neither of the two wished to be identified.

While announcing relief measures under Atmanirbhar Bharat (self-reliant India) package, Finance Minister Nirmala Sitharaman had in May said that government agencies would partially release bank guarantees, to the extent contracts are partially completed, to ease cash flows.

Federation of Indian Micro and Small & Medium Enterprises (FISME) Secretary General Anil Bhardwaj said that several members had been expecting for release of the bank guarantee from central government entities but have not received any benefit.

"The intent of the government is appreciable but the government will have to find some ways to operationalise this. There are some practical difficulties also and they need to be addressed," he said.

Bhardwaj noted that delay in release of bank guarantee had been a long-pending issue as it is held by one year to two years in many cases. He suggested bank guarantee should be required in parts so that depending on the extent of supplies made they are released.

For example, instead of a bank guarantee of Rs 1 crore for supplies worth Rs 10 crore, four bank guarantees of Rs 25 lakh each should be asked.

Concurring with Bhardwaj,  Shashi Cables Managing Director VK Aggarwal said that bank guarantee should be immediately released after 18 months of last supplies as provided in the contract.

"It currently takes almost two years in release the bank guarantee. If not followed up with the concerned agencies it does not come at all," Aggarwal said.

Shashi Cables supplies cables and conductors to central power companies and state electricity agencies besides large corporate entities.

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