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Rs 3 lakh crore MSME scheme: Non-registered retailers, small businesses eligible for emergency credit

MSMEs or business enterprises - constituted as proprietorships, partnerships, registered companies, trusts and limited liability partnerships (LLPs), as well as interested borrowers under Pradhan Mantri Mudra Yojna - would be eligible for the scheme

twitter-logoRahul Shrivastava New Delhi Last Updated: May 26, 2020 | 22:57 IST
Rs 3 lakh crore MSME scheme: Non-registered retailers, small businesses eligible for emergency credit
Finance Minister Nirmala Sitharaman had announced Rs 3 lakh crore collateral-free automatic loans to MSMEs on May 13

The Rs 3 lakh crore Guaranteed Emergency Credit (GEC) scheme will be available for retailers and other businesses too even if they are not registered as Micro, Small and Medium Enterprises (MSME).

In a circular issued on Tuesday, the National Credit Guarantee Trustee Company (NCGTC) clarified that MSMEs or business enterprises - constituted as proprietorships, partnerships, registered companies, trusts and limited liability partnerships (LLPs), as well as interested borrowers under Pradhan Mantri Mudra Yojna or PMMY - would be eligible for the scheme.

According to Finance Ministry sources, the inclusion covers members of the nearly 7-crore strong trading community.

In a bid to provide relief and credit support to businesses, especially MSMEs, Finance Minister Nirmala Sitharaman had announced Rs 3 lakh crore collateral-free automatic loans on May 13, a day after Prime Minister Narendra Modi unveiled the special economic package of Rs 20 lakh crore. The FM had said that the scheme will benefit 45 lakh small businesses. The Guaranteed Emergency Credit Line (GECL) facility was approved by the Union cabinet on May 22.

The amount will be 100 per cent guaranteed by the NCGTC to Member Lending Institutions (MLIs), providing a total liquidity of up to Rs 3 lakh crore to eligible MSMEs.

What make the new guarantee scheme attractive are capped interest rates of 9.25 per cent for banks and 14 per cent for NBFCs on loans provided for 4 years along with a 12-month moratorium. This improves lending as banks levy interest up to 17 per cent, while NBFCs charge up to 30 per cent.

Also Read: Coronavirus impact: Exporters face cash crunch as buyers demand double the credit to 120 days

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.

Loan under GECL 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, i.e., additional credit will be up to Rs 5 crore.

"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," Confederation of All India Traders (CAIT) General Secretary Praveen Khandelwal told India Today TV.

As per CAIT estimates, retail businesses had a daily turnover of over Rs 15,000 crore before the coronavirus crisis. Khandelwal says that the losses are going to mount as revival is difficult.

Also Read: Troubled hospitality sector seeks MSME tag for more firms, loan recast to tide over COVID-19 crisis

"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 till December, retail businesses would be in serious trouble."

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."

Union MSME Minister Nitin Gadkari, during a series of interactions via video conference, had 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.

MSME Registration: Eligibility, procedure, rates and other questions related to 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 February 29, 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 February 2, 2020. Accounts classified as NPA or SMA-2 as on this date will be ineligible.
  • 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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