MUMBAI : Banks, non-banking finance companies (NBFCs) and fintech companies that are into the business of lending are looking at utilising the government’s ₹3-lakh-crore Emergency Credit Line Guarantee Scheme (ECLGS) for helping the micro, small and medium enterprise (MSME) sector. Many institution have already started reaching out to their clients and expect to start disbursements by mid-June, which could see higher credit growth in the first quarter.
On Tuesday, State Bank of India Chairman Rajnish Kumar said that the bank has released ₹2,300 crore to 22,000 MSME loan accounts on a single day. As on 31 December 2019, SBI had an SME loan book of ₹2.78 lakh crore or 14% of the total loan book. “We are bullish on the ₹3-lakh-crore scheme as risk weight is zero and we don’t have to provide capital. This is a good scheme for supporting MSME sector,” said Kumar.
According to Arvind Kapil, country head (retail lending) at HDFC Bank, loan requests from MSMEs are increasing since lockdown lifted. “Banks have pre-approved customers, who are eligible for the ₹3 lakh guarantee scheme. These customers have been sent SMSs, emails to avail of the scheme. Our bank’s relationship managers are meeting up with customers to attain the documentation. Post checking the documents, ad hoc scheme will be disbursed,” he said.
Under the ₹3-lakh-crore collateral-free automatic loan scheme for MSMEs, guarantee will be provided by the National Credit Guarantee Trust Co. Ltd (NCGTC) in the form of a Guaranteed Emergency Credit Line (GECL) facility. The guarantee cover will be available for additional working capital and term loan facilities up to 20% of the outstanding credit limit up to ₹25 crore as on 29 February. For instance, if a business has a loan outstanding of ₹1 crore, it can borrow an additional ₹20 lakh. Only existing borrowers with revenue of up to ₹100 crore and those with up to 60 days past dues can avail of this scheme.
NBFCs and fintech players too are keenly looking at the scheme as an opportunity to protect their portfolio more than as a business opportunity. These companies are looking at lending to their MSME customers to help them repay loans under moratorium and tide over the immediate cash flow issues. While many have started reaching out to these customers, these NBFCs say that while they interested in this scheme, they would require funding from banks to on-lend to the small business borrowers.
“I don’t see this as a business opportunity but as an opportunity where I can help my customers. If we are able to register under NCGTC and able to raise funds from banks, specifically for this purpose, then I will definitely be interested. I cannot lend from my normal banking funds as I will have to service interest and principal on a monthly/quarterly basis,” said Y.S. Chakravarti, managing director and chief executive officer, Shriram City Union Finance, which has an exposure of 57% to small business loans.
For banks it makes business sense as they can charge a fixed interest rate of 9.25% with no guarantee fee to be given to NCGTC. However for NBFCs, the interest rate they can charge is fixed at 14% which is equivalent to their cost of funding.
“We are closely watching the repayment ability of these customers who have taken the moratorium. They will have to demonstrate the ability to service their loan after taking the moratorium. Else getting a new loan will be difficult. However we are interested in giving loans under the scheme and have already registered with NCGTC,” said Sameer Bhatia, founder & chief executive officer, SMECorner, an SME focussed fintech NBFC with 8000 customers and loan book of ₹550 crore.
According to bankers, taking the three month moratorium on loan repayment could become an issue for these MSME borrowers. If a customer has not availed of the moratorium, then he is considered to be a premium customer eligible for a loan under the scheme. The customer is still eligible even if he has taken only the first moratorium, though his repayment ability will be closely watched. However if the customer has availed of the moratorium from March to June, then no loan will be extended to him till he services the interest for 2-3 months.
Experts believe that such restrictions on the borrowers will put more pressure on the struggling sector that employs millions of Indians.
“The working capital facility is an automatic credit and it should be mandated by RBI to banks that the credit should be extended to MSME without any credit appraisal or evaluation. The credit should be extended based on certain percentage of average working capital facility drawn by banking customer,” says KR Sekar, Partner, Deloitte India
According to the report by TransUnion CIBIL- SIDBI for the month of April, the total on-balance sheet commercial lending exposure in India stood at ₹64.45 lakh crores as of January 2020 compared to ₹64.04 lakh crores in December 2019. Of this, MSME Segment is at ₹17.75 lakh crore credit exposure as of January 2020.