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August 3, 2020

Govt includes professionals like Lawyers, Chartered Accountants, Doctors, etc in its loan guarantee scheme for MSME’s

by Mahesh Mara in Compliance Law

Govt includes professionals like Lawyers, Chartered Accountants, Doctors, etc in its loan guarantee scheme for MSME’s

The government on 1st August, 2020 has expanded its Rs 3 lakh crore loan guarantee scheme for micro, small and medium enterprises to include loans given to professionals like doctors, lawyers and chartered accountants for business purposes as well as to Individual firms with a turnover of Rs 250 crore. Provided they have existing loan for business purpose outstanding in books

What is the Loan Guarantee Scheme?

  • The Emergency Credit Line Guarantee Scheme (ECLGS) was unveiled as part of the Rs 20 lakh crore comprehensive package announced by Finance Ministry on 13th May, 2020, to aid Micro, Small and Medium Enterprises (MSMEs) sector in view of the economic distress caused by the COVID-19 pandemic.
  • The scheme was announced as part of the government’s Atmanirbhar package to provide liquidity support to such sector.
  • The scheme is valid till 31st October, 2020 or till an amount of Rs 3,00,000 crore is sanctioned under the Guaranteed Emergency Credit Line (GECL) Scheme by all banks/NBFCs, whichever is earlier. Credit under GECL would be up to 20% of the borrower’s total outstanding credit up to Rs. 25 crores, excluding off-balance sheet and non-fund-based exposures, as on 29th February, 2020, subject to the borrower meeting all the eligibility criteria. The maximum is Rs. 5 cr.

Eligibility of the Guaranteed Emergency Credit Line (GECL) Scheme:-

  • All Business Enterprises /MSME borrower accounts with combined outstanding loans of up to Rs. 25 crore as on 29.2.2020, and annual turnover of up to Rs. 100 crore for FY 2019-20 are eligible for the Scheme.
  • Total Outstanding Amount would comprise of the on-balance sheet exposure. Off-balance sheet and non-fund-based exposures will be excluded. 
  • Loans provided to Business Enterprises / MSMEs constituted as Proprietorship, Partnership, registered company, trusts and Limited Liability Partnerships (LLPs) shall be eligible under the Scheme.
  • Business Enterprises / MSMEs would include loans covered under Pradhan Mantri Mudra Yojana extended on or before 29.2.2020, and reported on the MUDRA portal. 
  • Loans provided in individual capacity are not covered under the Scheme. 
  • The Scheme is valid for existing customers on the books of the MLIs.
  • Borrower accounts should be less than or equal to 60 days past due as on 29th February, 2020 in order to be eligible under the Scheme. Borrower accounts which had NPA or SMA-2 status, as on 29.02.2020 shall not be eligible under the Scheme.
  • Business Enterprises / MSME borrower must be GST registered in all cases where such registration is mandatory. This condition will not apply to Business Enterprises / MSMEs that are not required to obtain GST registration
  • To be eligible under the Scheme it is not necessary that the existing loans of the borrowers should be covered under the ECLGS of NCGTC.

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Scope of Guaranteed Emergency Credit Line expanded

So far, banks have approved loans amounting to Rs 1.37 lakh crore to 40 lakh MSME units under the scheme and disbursed around Rs 87,227 crore. It is expected that around Rs 1 lakh crore could be sanctioned to the additional beneficiaries. So far, the larger and higher rated NBFCs have benefitted from most of the government’s relief packages. Debasish Panda, Secretary, Department of Financial Services, said the changes to the scheme were taken after consultation with stakeholders and taking into account the remaining headroom under the window.

  • The Rs 3 lakh crore emergency credit facility targeted at small enterprises was expanded to include individual loans for working capital purposes to professionals such as doctors, lawyers, chartered accountants and other as well to help them tide over the crisis triggered by the coronavirus disease (Covid-19
  • To help large firms avail the loan facility, the government also increased the annual turnover ceiling of companies that could avail loan under the scheme to Rs 250 crore from the current Rs 100 crore, in sync with the revised definition of the MSMEs. Now, businesses/micro, small and medium enterprises with turnover of up to Rs 250 crore will get credit under the scheme
  • The Centre has pledged full guarantee for up to 20% extra, collateral-free working capital loans under the ECLGS. This means that the maximum loan that can be availed under the scheme has also been increased to Rs 10 crore from Rs 5 crore and individual loans have been brought under its ambit too.
  • Eligible businesses with up to Rs 50 crore outstanding as of February 29 will be eligible, instead of the extant cap of Rs 25 crore.

Asked if the GST Council will be allowed to borrow funds for distribution to states to fight the pandemic, Sitharaman said the opinion of the attorney general has been sought for this purpose. The AG’s opinion will be placed before the next meeting of the council, the date for which is yet to be set.

Relief to be expected from RBI also

To provide relief to the industry, the government is in talks with the Reserve Bank of India (RBI) on various matters. Industry has been demanding a one-time loan restructuring. However, private banks are not in favour of extending loan moratoriums any further, out of concern that even borrowers capable of paying back loans may be dissuaded from doing so in case of an extension. RBI’s Monetary Policy Committee (MPC) is scheduled to meet next week. The RBI too is expected to come up with one-time restructuring of loans for stressed sectors like tourism and hospitality in its monetary policy review.

India’s gross domestic product numbers for the April-June quarter are expected at the end of August; for two of those months, the country was under a severe lockdown, and that is expected to have taken its toll on Asia’s third largest economy. Prime Minister Narendra Modi is getting regular feedback on the economic situation and the government and is keeping all options open to facilitate a faster economic recovery. This is the latest in a string of stimulus measures announced by the Modi government to cushion the impact of the coronavirus disease pandemic, which struck at a time when a slowdown in householding spending and corporate investment had already become a drag on economic growth.

The relaxation was made, keeping in view the success of the scheme and its potential to help businesses. The expansion of the loan guarantee scheme comes a day after Sitharaman firmly told the industry to lodge a complaint with her if banks refuse to give loans to MSMEs struggling under the pandemic impact. The minister on Saturday reassured that the government will do everything to help businesses stand on their own feet again.

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