The Rs 3 lakh crore emergency credit guarantee scheme to help the micro, small and medium enterprises (MSMEs) under the covid relief scheme should ideally be an easy pick for any bank to grant additional 20 per cent loans without any credit risk.
There is a 100 per cent guarantee cover with no provision for risk weights from the capital.
But at the ground situation is different. While low demand could be a reason as lockdown is still in force, there are also credit assessment reasons for the low disbursement. The banks are not taking the guarantee at its face value as they will get only the 75 per cent of the amount at the time of default while the balance would be given after the recovery of the loan. Therefore, there are additional checks and balances introduced by some of the bank before clearing any application for additional facility.
First, the collateral value in the existing loans have gone down, which is creating a big risk for bankers. The bankers are assessing and valuing the existing collateral post the covid disruption. The additional 20 per cent loan is only available to existing borrowers with up to Rs 25 crore loan from banks.
Secondly, there are some banks that are looking at the credit rating of MSMEs. According to a bank, the external rating in case of Rs 5 crore and above exposure should be triple BBB or above. The banks are also insisting that there should not be any downgrade in external credit rating since the date of last sanction.
In addition, wherever the existing loan of a MSME is less than Rs 5 crore, and where post the additional 20 per cent credit line, the loan is going up to Rs 5 crore or more, the borrowers are asked to seek external rating which should be equivalent to BBB or higher.
Despite the massive COVID-19 disruption, the scheme has been progressing very slow. The Finance Minister has released a total loan sanctioned figure of Rs 36,486 crore by June 16, 2020. The disbursements are only Rs 18,306 crore. These are very small figures as compared to Rs 3 lakh crore guarantee cover. The country's largest bank, State Bank of India has sanctioned Rs 15,000 crore loan, out of which close to 9,000 crore has been disbursed.
Clearly, the banks are extra careful in rolling out any new loans. The NPAs in the banking system is already at 9 per cent plus. The NPAs in the small loan is much higher at over 15 per cent.