By Sheikh Nissar
After a long standstill government rolled out un-lockdown one, with certain guidelines. Societies and businesses race to reopen, though the global pandemic still poses significant threats. We know coronovirus endangered both our lives and livelihood and probably there are many economic pains ahead. Surge in infections throughout the country make us more susceptible to infection than earlier. Therefore, lifting of social distancing and re-imposing them, if infection rises, would be more destructive than previous lockdowns. So, it is obligatory for us to strictly follow the un-lockdown guidelines to contain coronavirus and its associated economic crisis.
Indian economy is huge and diverse. But the diverse economy of India was already in parlous state before covid-19 pandemic broke out. In this situation, the prolonged lockdown disturbed the capacity of businesses to survive and the economy to recover. Therefore, keeping in view the diversity, the government of India came up with 20 Lakh crore rupees (Aatma Nirbhar Bharat Abhiyan) stimulus package to rejuvenate pandemic hit economy and save country from financial crisis. The package is 10% of India’s total GDP. Unveiling the first tranche of economic stimulus to help business during the pandemic, Finance Minisnter Nirmala Sitharam on May 13 announced collateral free loans up to Rs 3 lakh crore backed by government guarantee. The scheme is the second biggest component of 21 lakh crore comprehensive stimulus package. Under the scheme, National Credit Guarantee Trustee Company (NCGTC) will provide 100% guarantee coverage for additional funding of up to Rs 3 lakh crore to eligible MSMEs and interested MUDRA barrowers, in the form of a guaranteed emergency credit line (GECL) facility. The Scheme aims to alleviate the economic distress encountered by MSMEs by providing them with additional funding.
All business enterprises or MSMEs (Proprietorship, partnership, registered company, trusts and Limited Liability Partnerships) that have a combined outstanding loan across different banks, NBFCs and FIs up to Rs. 25 crore as on 29 February 2020 are eligible for the Scheme. The annual turnover of the firm should not exceed Rs 100 crore for financial year 2019-20. The scheme would cover existing customers of bank only. All MSME borrower accounts should be less than or equal to 60 days late on this date i.e. regular SMA0 and SMA1 accounts. SMA0 are those loans where principal and interest are overdue for less than 31 days and SMA1 accounts are those where repayments have been overdue for between 31 and 60 days. The borrowers who have been classified as SMA2 or NPA by any lender as on 29 Feb 2020 are not eligible for the scheme. A borrower must also be registered under GST, unless the business is not required or exempted from having a GST registration.
The procedure of availing loan is very simple and hassle free. MSME eligible borrowers will receive an offer from their credit institutions for a pre-approved sanction limit of up to 20% of loan outstanding as on 29 February, 2020 under the Rs 3 lakh crore programs announced for micro, small and medium enterprises to help them cope with the impact of COVID-19. The Scheme would be applicable to all loans sanctioned under GECL Facility during the period from the date of announcement of the Scheme to 31 November, 2020. Repayment period for the loan under Scheme is four years (48 months) with a moratorium period of one year (12 months) on the principal amount (interest is payable from the disbursement of loan). There would be no Guarantee Fee charged by NCGTC from the Member Lending Institutions (MLIs). Interest rates under the Scheme shall be capped at 9.25% for banks and FIs, and at 14% for NBFCs.
Coronavirus pandemic gave a huge blow to global economy and Indian economy is not an exception to it. After demonetization and poor implementation of GST, Indian economy was already in parlous condition. Now the blow of covid-19 intensified crisis. Due their size and limited financial resources, MSMEs and other businesses were acutely hit by the pandemic. Therefore, GoI introduced GECL scheme to alleviate the distress encountered by MSMEs. The Scheme provides credit availability to MSMEs and small businesses to meet their operational liabilities and revive their businesses which got affected due to two months’ countrywide lockdown. It will bring a positive impact on the economy and will mitigate the distress caused by the Coronavirus pandemic.
Note: Opinions are personal, not of the institution author is working for.
Sheikh Nissar can be reached at sheikhnissar@Outlook.com
