MSME loans: Inside Punjab National Bank’s funding schemes for COVID-19 relief

The COVID-19 pandemic hit India’s MSME (micro, small, and medium enterprises) sector the hardest. In May 2020, Union Minister for MSME Nitin Gadkari warned that the sector was on the verge of collapse.

With the infusion of capital becoming critical to MSME survival, public sector bank Punjab National Bank (PNB) launched several initiatives to ensure business continuity for small businesses.

Some of these initiatives are: Guaranteed Emergency Credit Line (GECL), COVID-19 Emergency Credit Facility (CECF), Liberalised Working Capital Assessment (LWCA), Standby Line of Credit, Credit Guarantee Scheme for Subordinate Debt (CGSSD) for Stressed MSMEs, and PM SVANidhi.

PNB also extended the benefit of moratorium in all accounts that were in the standard category, SMA-0 or SMA-1, as on 29 February 2020. This meant a moratorium in instalments of term loans and deferment of interest in working capital facilities until August 31, 2020, 2020, in accordance with the Reserve Bank of India’s (RBI) directions

As of October 1, 2020, PNB’s MSME portfolio stood at Rs 1.27 lakh crore in over 19 lakh accounts, according to bank officials.

Here’s a closer look at PNB’s MSME loan schemes for COVID-19 relief and how they work:

Guaranteed Emergency Credit Line (GECL)

Under this scheme, credit for MSMEs would be up to 20 percent of the borrower’s total outstanding credit up to Rs 50 crore, as of February 29, 2020. The additional credit given can be up to Rs 10 crore for borrowers having an annual turnover of up to Rs 250 crore for FY 2019-20.

PNB officials say the bank has sanctioned Rs 10,963.42 crore in 4.16 lakh accounts, as of October 3, 2020. Out of this, Rs 9,234.99 crore has been disbursed in 1.78 lakh accounts under the scheme.

For more information, click here.

PNB COVID-19 Emergency Credit Facility (PNB-CECF)

Under PNB-CECF, 10 percent of existing working capital limits was made available to all borrowers under standard, SMA0 and SMA1 categories. The scheme stands closed as of September 30, 2020, with sanctions to 55,633 MSME borrowers amounting to Rs 2,346.39 crore.

For more information, click here.

Liberalised Working Capital Assessment (LWCA)

This model involves a reassessment of working capital limit up to 33 percent of projected turnover for FY 2020-21, for loans. The limits taken into consideration are up to Rs 5 crore and over Rs 5 crore based on revised credit monitoring arrangements. 

The reassessment is applicable on a reduced margin of minimum 10 percent on stocks and a minimum 15 percent on receivables.

As of October 3, 2020, 30,486 accounts amounting to Rs 1,617.81 crore have been reassessed for MSME borrowers with limits up to Rs 5 crore, say PNB officials. Additionally, 101 accounts amounting to Rs 542.41 crore have been reassessed for MSMEs with working capital limits over Rs 5 crore.

For more information, click here.

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Standby Line of Credit for MSMEs

About 25 percent of existing working capital limits up to Rs 5 crore, i.e., a maximum of Rs 1.25 crore, is provided to MSMEs facing temporary liquidity crunch. All borrowers under the category of standard, SMA0, SMA1, and SMA2 are eligible under this scheme.

As of October 1, 2020, Rs 77.23 crore has been sanctioned in 385 accounts under this scheme, the bank says.

For more information, click here.

Credit Guarantee Scheme for Subordinate Debt (CGSSD) for Stressed MSMEs

Under this scheme, a personal loan is given to promoters of stressed MSMEs. It is provided for infusion as equity/quasi equity in the business that should be eligible for restructuring as per RBI guidelines. The loans are provided with a 90 percent credit guarantee by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

As of October 1, 2020, PNB claims to have sanctioned 161 applications amounting to Rs 6.82 crore under CGSSD.

For more information, click here.

PM SVANidhi

This government scheme aiming to provide affordable loans to street vendors started from July 1, 2020, and is valid up to March 2022. The target under this scheme is to benefit over 50 lakh street vendors, who had been vending on or before March 24, 2020, in urban areas.

Under this, the maximum working capital term loan is Rs 10,000 for a period of one year. PNB has sanctioned 56,276 applications under this scheme and disbursed loans to 21,021 street vendors as of October 5, 2020, according to bank officials.

For more information, click here.

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Besides these initiatives, PNB has increased customer outreach — it claims to have sent over 3.4 lakh text messages on pre-approval of loans for eligible MSME borrowers under PNB-CECF. Under GECL, it has sent 5.54 lakh messages for pre-approved loans.

PNB plans to continue using SMS to reach out to potential MSME borrowers.

Regular MSME loan services

PNB provides fund based and non-fund based facilities to MSME borrowers for setting up new units, as well as expanding existing business units.

These include regular term loan, cash credit, overdraft facility, bill financing, letter of credit, packing credit, bank credit, etc. The bank also extends collateral-free loans up to Rs 10 lakh for MSMEs.

However, collateral security is not the only criteria that PNB considers for lending. Factors such as the financial position of the borrower, repaying capacity, credit history, and business management practices play a role in credit underwriting.

As such, loans not covered under the credit guarantee schemes are covered by collateral security on a case-to-case basis.

To augment its MSME portfolio, PNB is focussing on credit outreach through tie-ups with NBFCs under the co-origination model. It is also working with fintech companies, encouraging the usage of TReDS platforms, boosting channel financing and undertaking digital lending using surrogate data sources.