- MSMEs complain of banks asking for unnecessary paper works to avail collateral-free government-guaranteed loan
- Industry bodies FISME and SME Chamber of India have received complaints from members about banks asking for business projections
- FISME has requested Commerce Ministry for dashboard on number of loans sanctioned and disbursed
- Centre approved Rs 3 lakh crore collateral-free loans for MSMEs as part of relief package
Many firms have complained banks are insisting on 'avoidable' paperwork to grant government guaranteed collateral-free loans as part of coronavirus relief package.
SP Gupta, a former banker who currently advises MSMEs on financial matters said that one of his clients has applied for additional credit limit under Guaranteed Emergency Credit Line (GECL) from Syndicate Bank. The bank has asked them for provisional/audited balance sheet for FY20, projections and debt-service coverage ratio (DSCR).
It may be noted that Syndicate Bank has now been merged with Canara Bank as part of the government's mega consolidation plan.
"They have also sought renewal papers for working capital when businesses are going through a tough time. Banks should not insist for such papers. They should instead provide for emergency fund," Gupta says.
Canara Bank did not respond to an email query sent to it on June 2 regarding document requirements under Emergency Credit Line Guarantee Scheme (ECLGS).
Industry bodies Federation of Indian Micro and Small & Medium Enterprises (FISME) and SME Chamber of India have received complaints from its members about some of the banks making things complicated for struggling small firms.
FISME has requested the Ministry of Commerce for setting up a dashboard on the number of loans sanctioned and disbursed to ensure that banks follow the government directive in letter and spirit. The industry body also wants daily updates on grievances made by the borrowers and resolved by the lenders.
"We had this fear that a lot of banks who may not be interested in giving loans would ask for a lot of paperwork. Because they know that the future is not bright for many companies so banks demand and check credit worthiness. I think some banks are taking this approach but at the same time some banks are pushing it hard also as they want to better their balance sheet," FISME President Animesh Saxena said.
SME Chamber of India President Chandrakant Salunkhe said that many of the members of the chamber had come with grievances against banks for avoidable paperwork.
"Banks already have all the documents in case of existing borrowers. Banks asking for balance sheet for FY20 are well aware that factories are closed since March 24. The offices of chartered accountants are also closed," Salunkhe contended.
The Union cabinet has cleared Rs 3 lakh crore collateral-free and government guaranteed loans for MSMEs, traders, Mudra borrowers and other eligible firms to help them tide over the ongoing coronavirus crisis. The emergency credit scheme covers existing borrowers with outstanding credit limit of up to Rs 25 crore as on 29 February 2020 and having a turnover of up to Rs 100 crore. The borrowers are eligible for upto 20% of their entire outstanding loans as emergency credit line.
The interest rate charged by banks and financial institutions has been capped at 9.25% for the additional credit. In case of NBFCs, the upper limit of interest rate is fixed at 14%.
The government has nudged banks to go in mission mode to disburse loans under the Emergency Credit Line Guarantee Scheme (ECLGS) and has required them to submit daily reports on sanction and disbursement. The public sector banks led by SBI had sanctioned a total of Rs 10,361 crore and disbursed Rs 3,892 crore as on June 1, 2020.