MSME Loan Announcement in Aatma Nirbhar Package

Introduction:

On 13 May, finance minister of India Smt. Nirmala Sitharaman announced the first tranche of the economic package which was more focussed on uplifting MSME Sector.

This MSME economic package aims to revive and restart business which is affected due to COVID 19 and the shutdown followed by it. Primarily the package aims at making a self-reliant India and hence is called ATMA NIRBHAR BHARAT. The announcement contains many bold steps to revive the industry at large however does it really help MSME in getting good low interest loans? Are MSME Loans would be easily available in future? We have tried to find out the same here through research.

The Announcement:

Below listed down are only announcements made in the first tranche of the economical package which is beneficial for MSMEs.

So below are the announcements made:

1. Rs 3 lakh crore Emergency Working Capital Facility for Businesses, including MSMEs
2.  Rs 20,000 crore Subordinate Debt for Stressed MSMEs 
3. Rs 50,000 crore equity infusion through MSME Fund of Funds 
4. New Definition of MSME and other Measures for MSME 
5. No Global tenders for Government tenders of up to Rs 200 crore 
6. Extending the Employees Provident Fund Support for business and organised workers  
7. 2020 EPF Contribution to be reduced for Employers and Employees for three months to 10% from 12% for all establishments covered by EPFO for the next three months 
8. Rs. 30,000 crore Special Liquidity Scheme for NBFC/HFC/MFIs
9.  Rs. 45,000 crore Partial credit guarantee Scheme 2.0 for Liabilities of NBFCs/MFIs
10.  Rs 90,000 crore Liquidity Injection for DISCOMs 
11. Relief to Contractors given by extension of up to six months for completion of contractual obligations, including in respect of EPC and concession agreements

After hearing all the big figures and packages a layman got a positive feeling, that he would get more capital, this was because all the news channel were saying the same. However, in reality, only thing layman could understand MSME and a collateral-free low-interest loan.

After this, all the SME owners started contacting their CA’s, banks to understand the same so that he doesn’t miss the bus and get benefitted, but unfortunately as it was a very recent announcement no one was able to comment on it right away. 

Hence to clear off the mist around it, we have tried to unveil only the loan or fund related announcements for MSME, after doing long research around its every word.

 

Loan Related Announcements:

Understanding fund or loan-related measures:

Above were all announcements made in the press conference, however out of that below are loan or fund related announcements :

1. Rs 3 lakh crore Emergency Working Capital Facility for Businesses, including MSMEs
2.  Rs 20,000 crore Subordinate Debt for Stressed MSMEs 
3. Rs 50,000 crore equity infusion through MSME Fund of Funds 
4. Rs. 30,000 crore Special Liquidity Scheme for NBFC/HFC/MFIs
5.  Rs. 45,000 crore Partial credit guarantee Scheme 2.0 for Liabilities of NBFCs/MFIs
6.  Rs 90,000 crore Liquidity Injection for DISCOMs 

Understanding each point:

First Announcement of MSME Package:

1. Rs 3 lakh crore Emergency Working Capital Facility for Businesses, including MSMEs :

 Understandings:

• Who will get: This will be available to businesses with outstanding up to Rs.25 crore and turnover up to Rs.100 crore and whose accounts are standard in banks, meaning they have not defaulted on existing loans EMI up to 180 days from the due date.
• How will they get: They will get a term loan from banks at a concessional rate. However, concessional rates quantum is not clarified yet.
• How much they will get: They will get a loan amount up to 20% of outstanding credit on 29 February 2020. 
• Charges for loan: The loan would be security free loan, and no guarantee charges would be required for the same as it would be 100% guaranteed by GOI.

2.Rs 20,000 crores Subordinate Debt for Stressed MSMEs:

• Who will get: Non-Performing Assets Account or Stressed account, means bank loan accounts who have not repaid for 180 days or more or on the path of doing so.
• How will they get: Existing banks from which the previous loan was taken will provide the subordinate loan in the form of debt to the business promoters of those NPA accounts.
• How much they will get: Promoters will get up to 15% loan of the stake they hold in the given stressed business subject up to 75 lakhs.

3.Rs 50,000 crore equity infusion through MSME Fund of Funds:

• Who will get: As per the wordings, it is understood that all MSME business will get this benefit.
• How will they get: In simple language, GOI will form a fund (private or mutual fund) which will consist of two to three portfolio of funds which will invest 10,000 crores in MSME business to boost them, and make them more viable and potential. Which bodies will operate this fund is a question.

4.Rs. 30,000 crore Special Liquidity Scheme for NBFC/HFC/MFIs:

• In this measure, RBI will invest 30,000Rs crore through primary and secondary market means, in short, it will invest in new shares or debts or exchange-traded debts, commercial papers & bonds.
• But, it will invest only in those securities which invest their money in Non-Banking Finance Corporations, Housing Finance Corporations and Micro Finance Institutions.
• That means above sectors will indirectly get a boost and have more money lenders to it and can use that capital for the furtherance of their business.

5. Rs. 45,000 crore Partial credit guarantee Scheme 2.0 for Liabilities of NBFCs/MFIs:

• Let’s understand the partial credit guarantee scheme first. This scheme was started in August 2019 for six months in which Public sector banks were directed by GOI to invest in NBFC by purchasing their Loan portfolios which are AA rated and in this scheme GOI was guaranteeing 10% of loss if the loss was made.
• Now, this scheme is extended in 2.0 to Micro Finance Institutions, and 20% loss is guaranteed in this.
• Hence this will again make cash available.

6.Rs 90,000 crore Liquidity Injection for DISCOMs:

• DISCOM means Distribution Companies in India.E.g.: MSEDCL, TPDDL. These companies do not generate electricity but distribute them to consumers.
• In this measure, two corporations Rural Electrification Corporation and Power Finance Corporation will infuse means invest or lend to these distribution companies amount of 90,000Rs crore in two equal instalments which will be used by these DISCOMS to clear payments of generating and transmission companies.
• Also, CPSE GENCO means central public sector generation companies, e.g., NTPC, NHPC etc will give a discount to these discoms which will eventually pass it on to consumers. 
• Hence, in future at least union territory consumers will hopefully have less light bills.

Conclusion

Above are points presented on our personal research, which will help layman to understand the MSME loan points more clearly. In this we surely fill more liquidity would be available in the market but will that liquidity will be passed on with very low loan schemes is still a doubt, but surely old MSMEs with good turnover will benefit from the same.