GOVERNMENT CIRCULATES  DRAFT DETAsILS OF LOAN SCHEME FOR MSMEs

The draft circular sent by the fi,nance ministry to banks,detailing the implementation of collateral -free automatic loans for businesses, including micro small and medium enterprises(MSMEs) says banks can charge up to 9.25% interest, said a senior banker, requesting anonymity. The scheme was part of the Rs 20-trillion Atmanirbhar Bharat Abhiyan to kickstart the economy amid the COVID-19 outbreak.According to the draft , the Rs 3 trillion scheme comprisesa Rs2-8 trillion in automatic loans, while Rs 20,000crore will be made avaiable as subordinate deb t for stressed MSMEs.Under the automatic loan scheme,banks can charge interest  of 9.25% while non-banking financial companies(NBFCs) can charge up to 14%.The scheme will cover only existing borrowers with outstanding credit limit of up to Rs 25 crore as on 29 February and having a turnover of up to Rs 100 crore.It will also include borrowers with up to 60 days past dues and cover working capital and term loan facilities.

The credit line will be 100% guaranteed by the goverment through the credit Guaranteed Fund Trust for Micro and Small Enterprises(CGTMSE) but no guarantee fee.The ministry also sought feedback from banks on the Scheme before it comes up with the blueprint next weeks,said the banker."The draft scheme looks good.We had received few queries from new customers. The draft has made it clear that the scheme is applicable only to existing customers and those with outstanding of Rs25 crore" he added.

The details of the other schemes, such as the Rs 30,000 crore special liquidity scheme for NBFCs, housing finance companies(HFCS) and micro -finance institutions(MFIs),are still awaited.Analysts said despite the implementation of these liquidity schemes, the package is likely to benefit high-rateds entities with AA and A leaving the BBB companies starved for liquidity.Similarly, Rs 30,000 crore special liquidity scheme includes only investments in investment grade papers,which are hardly issued by lower- rated NBFCs and MFIs.According to analysts, these companies have experience issuing pass through certificates(PTCs) on their pooled assets.