Govt approves Rs 20,000 Cr subordinate debt for stressed MSMEs

The Union Cabinet on Monday approved Rs 50,000 crore equity infusion for MSMEs to strengthen their growth potential while the government also approved Rs 20,000 crore subordinate debt for stressed MSMEs.

Union Minister Prakash Javadekar said the decision on equity infusion will also enable micro, small and medium enterprises (MSMEs) to get listed on stock exchanges.

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A Fund of Funds (FoF) with corpus of Rs 10,000 will be set up. The Fund of Funds will be operated through mother fund and few daughter funds.

The fund structure will help leverage Rs 50,000 crore of funds at daughter funds level.

The subordinate debt for stressed MSMEs is likely to benefit two lakh stressed MSMEs.

Public sector banks (PSBs) on Monday sanctioned Rs 3,200 crore through the Rs 3 lakh crore Emergency Credit Line Guarantee Scheme for the MSME sector hit hard by the coronavirus-induced lockdown.

The scheme is the biggest fiscal component of the Rs 20 lakh crore Aatmanirbhar Bharat Abhiyan package announced by Finance Minister Nirmala Sitharaman last month.

"In a single day, June 1, 2020, #PSBs have sanctioned collateral-free loans worth Rs 3,200 crore through the Emergency Credit Line Guarantee Scheme," the Finance Minister said in a tweet.

"#MSMEs in more than 3,000 Tier-II towns were covered in one day (Monday) under the collateral-free loans that will enable them to pay salaries, rent, and restocking expenses," it said.

On May 21, the Union Cabinet approved additional funding of up to Rs 3 lakh crore at a concessional rate of 9.25 percent through the Emergency Credit Line Guarantee Scheme (ECLGS) for the MSME sector.

Under the scheme, 100 percent guarantee coverage will be provided by National Credit Guarantee Trustee Company (NCGTC) for additional funding of upto Rs 3 lakh crore to eligible MSMEs and interested MUDRA borrowers, in the form of a guaranteed emergency credit line (GECL) facility.

For this purpose, a corpus of Rs 41,600 crore was provided by the Government of India spread over the current and the next three financial years.

The scheme would be applicable to all loans sanctioned under GECL facility during the period from the date of announcement of the scheme to October 31 or till an amount of Rs 3 lakh crore is sanctioned under GECL, whichever is earlier.

The main objective of the scheme is to provide an incentive to member lending institutions (MLIs) like banks, financial institutions (FIs) and non-banking financial companies (NBFCs) to increase access to, and enable availability of additional funding facility to MSME borrowers, in view of the economic distress caused by the COVID-19 crisis, by providing them 100 percent guarantee for any losses suffered by them due to non-repayment of the GECL funding by borrowers.

All MSME borrower accounts with an outstanding credit of up to Rs 25 crore as on February 29 which were less than or equal to 60 days past due as on that date, ie, regular, SMA-0 and SMA-1 accounts, and with an annual turnover of up to Rs 100 crore would be eligible for GECL funding under the scheme.

Meanwhile, the government further amended the definition of MSME. Turnover limit for medium enterprises has been revised upward to Rs 250 crore (from Rs 100 crore as announced earlier).