by on June 21, 2021

Covid-19 crisis: Relief for MSME promoters under debt scheme likely

Shreya Nandi, Busienss Standard

The Centre is planning to make procedural changes in the stressed asset guarantee plan for small businesses to make it more popular. With this, promoters may not need to take risk in their personal capacity to avail the benefits of the scheme.

“The industry has been calling for tweaking some provisions of the scheme so that more businesses are able to avail benefits. There could be around four-five procedural changes in the scheme,” a senior government official told Business Standard.

The micro, small and medium enterprises (MSME) ministry will soon take it up with the finance ministry's department of financial services before implementing any changes, the official cited above said.

The government had, in May last year, announced a slew of measures to help MSMEs tide through the Covid-19 crisis. Credit Guarantee Scheme for Subordinate Debt was announced to revive small business units that had become stressed. The idea was to support distressed MSMEs by infusing capital in the form of equity.

In the scheme, the government is facilitating a provision of Rs 20,000 crore as subordinate debt. According to the guidelines, personal loans are given to promoters of stressed MSMEs, which are infused by the promoter as equity into the business unit, thereby enhancing the liquidity and the debt-equity ratio.

Promoters of distressed units are given a debt facility of up to 15 per cent of the promoter’s stake or Rs 75 lakh, whichever is lower. Besides, the promoters are required to bring in 10 per cent of the sub-debt amount as collateral, while 90 per cent guarantee coverage is given under the scheme. Such guidelines have been the main reasons for the scheme not gaining popularity among businesses, the official said.

The response to the scheme has been lukewarm, government and industry officials said. As of May 14, guarantees to the tune of only Rs 68.39 crore were issued, benefitting 632 businesses, Business Standard had reported earlier.

The subordinate debt is provided by banks and guaranteed through Credit Guarantee Trust for Medium and Small Enterprises (CGTMSEs). The Centre has offered Rs 4,000 crore support to CGTMSEs. The scheme was operationalised in August last year and aims to benefit 200,000 small and medium businesses. It is valid till September 30.

“The objective of the scheme is to provide personal loans through banks to promoters of stressed MSMEs for infusion as equity/quasi-equity in the business eligible for restructuring, according to the RBI norms for stressed MSME advances,” the guidelines said.

The scheme was announced as part of the government's Aatmanirbhar Bharat package amid a nationwide stringent lockdown, along with the popular emergency credit-linked guarantee scheme that has now been extended to a bunch of sectors.

Support for small businesses is crucial as they are considered the backbone of the Indian economy and are major job creators as well.

Posted in: Business
Topics: msme
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