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May 26, 2020

MSME Scheme 3 lacs Crore: Eligibility and Procedure

The Rs 3 lakh crore emergency credit borrowing scheme for Micro, Small and Medium Enterprises (MSMEs) announced by the Modi govt on May 12 will also cover retailers and other businesses. Emergency Credit Line Guarantee Scheme for Medium, Small and Micro Enterprises (MSMEs) under the Atma Nirbhar Bharat Abhiyan to help them tide over the financial crisis being faced due to the COVID-19 pandemic. 

The government will set up a Rs 41,600 cr fund under National Credit Guarantee Trustee Company Limited (NCGTC) for this scheme. NCGTC is likely to provide 100 per cent guarantee to loans to be given to more than 45 lakh micro, small and medium enterprises (MSMEs) at an attractive rate of 9.25 per cent. Under this scheme, MSMEs borrowers with up to Rs 25 crores of total borrowing can avail an additional 20 per cent of the loan outstanding from banks, NBFCs and other financial institutions.

Borrowers will have a one-year moratorium of repayment, and the interest rate charged by banks, NBFCs and other financial institutions. will be capped 9.25 pe%, and at 14% in the case of NBFCs. The scheme is also proposed at helping stressed borrowers who are not in default, therefore borrowers with standard accounts (with timely repayment), SMA-0 (with overdue of up to 30 days) and SMA-1 (with overdubs of up to 60 days) are eligible to take these loans.

Here are some Frequently Asked Questions (FAQ) on Guaranteed Emergency Credit Line of Rs 3 lakh crore.

What is the Guaranteed Emergency Credit Line (GECL)?

The GECL is a loan for which 100% guarantee would be provided by National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs), and which will be increased in the form of additional working capital term loan facility in case of Scheduled Commercial Banks (SCBs) and Financial Institutions (FIs), and additional term loan facility in case of Non-Banking Financial Companies (NBFCs), to qualified MSMEs/ Business Enterprises and interested Pradhan Mantri Mudra Yojana (PMMY) borrowers. Credit under GECL would be up to 20% the borrower’s total outstanding credit up to Rs 25 crore, excluding off-balance sheet and non-fund based exposures, as on February 29, 2020, i.e., additional credit shall be up to Rs 5 crore.

What is the Emergency Credit Line Guarantee Scheme?

The Emergency Credit Line Guarantee Scheme provides 100% guarantee coverage by NCGTC to MLIs on GECL of up to Rs 3 lakh crore to qualified MSMEs. MSMEs for the purpose of this Scheme will include MSMEs/ Business Enterprises which are constituted as Partnerships, Proprietorships, Registered Companies, Trusts and Limited Liability Partnerships (LLPs), and also interested borrowers under PMMY.

What is the objective of the Scheme?

The Scheme is a specific response to the unprecedented situation COVID-19. It seeks to give much-needed relief to the MSME sector by incentivizing MLIs to give additional credit of up to Rs 3 lakh crore at low cost, through empowering MSMEs to satisfy their operational obligations and restart their businesses.

What is the duration of the Scheme?

The Scheme would be applicable to all loans sanctioned under GECL during the period from May 23, 2020, to October 31, 2020, or till an amount of Rs 3 lakh crore is sanctioned under GECL, whichever is earlier.

What will be the eligibility criteria for MSMEs to avail the benefit of the Scheme?

The eligibility criteria under the Scheme are as under:

  • All MSME borrower accounts combined outstanding loans across all MLIs of up to Rs 25 crore as on February 29, 2020, and annual turnover of up to Rs 100 crore in FY 2019-20. In case accounts for FY 2019-20 are yet to be audited/finalized, the MLI may rely upon the borrower’s declaration of turnover.
  • The Scheme is valid only for existing customers on the books of the MLI.
  • Borrower accounts should be classified as regular, SMA-0 or SMA-1 as on February 29, 2020. Accounts classified as NPA or SMA-2 as on February 29, 2020 will not be eligible under the Scheme.
  • The MSME borrower must be GST registered in all cases where such registration is mandatory. This condition will not apply to MSMEs that are not required to obtain GST registration.
  • Loans provided in individual capacity will not be covered under the Scheme.

Who are the MLIs under the Scheme?

All Scheduled Commercial Banks (SCBs) are eligible as Member Lending Institutions (MLIs). NBFCs which have been in operation for at least 2 years as, on February 29, 2020, and Financial Institutions (FIs) will also be eligible as MLIs under the Scheme.

What will be the definition of FIs for the purpose of this Scheme?

FIs for the purpose of this Scheme will be defined under sub-clause (i) of clause (c) of Section 45-I of RBI Act.

What would be the guarantee coverage under the Scheme?

The entire funding provided under GECL shall be provided with a 100 per cent credit guarantee coverage by NCGTC under the Scheme.

Will the Scheme also cover borrowers under PMMY?

Yes, loans under PMMY extended on or before February 29, 2020, and reported on the MUDRA portal shall be covered under the Scheme.

Will GECL be extended as a separate loan account, or as part of the existing loan account of the borrower?

A separate loan account shall be opened for the borrower for extending additional credit under GECL. This account will be distinct from the existing loan account(s) of the borrower.

Will loans under the Scheme be automatically given without any application or solicitation from the borrower?

This is a pre-approved loan. An offer will go out from the MLI to the eligible borrowers for a pre-approved loan which the borrower may choose to accept. If the MSME accepts the offer, it will be required to complete requisite documentation. Thus, an ‘opt-out’ option will be provided to eligible borrowers under the Scheme, i.e., if the borrower is not interested in availing the loan, he/she may indicate accordingly.

What would be the procedure followed in case a borrower has loan accounts with multiple lenders?

  1. In case a borrower has existing limits with multiple lenders, GECL may be availed either through one lender or each of the current lenders in proportion depending upon the agreement between the borrower and the MLI.
  2. In case the borrower wishes to take from any lender an amount more than the proportional 20 per cent of the outstanding credit that the borrower has with that particular lender, a No Objection Certificate (NOC) would be required from all other lenders.
  3. No NOC will, however, be required if the GECL availed from a particular lender is limited to the proportional 20 per cent of the outstanding credit that the borrower has with that lender.

To avail GECL, will it be necessary for existing loans of the borrower to be covered under existing guarantee schemes such as CGFMU or CGTMSE?

No.

Will the interest rate on GECL be capped?

Yes, interest rates on GECL shall be capped as under:

  • For Banks and FIs, one of the RBI prescribed external benchmark linked rates +1 percent subject to a maximum of 9.25 percent per annum
  • For NBFCs, the interest rate on GECL shall not exceed 14 percent per annum The Scheme may also be operated in combination with applicable interest subvention schemes, as far as feasible.

What would be the tenor of loans provided under GECL?

The tenor of loans provided under GECL shall be four years from the date of disbursement. No prepayment penalty shall, however, be charged by the MLIs in case of early repayment.

Is there any moratorium period prescribed under the Scheme?

Yes, a moratorium period of one year on the principal amount shall be provided for GECL funding. Interest shall, however, be payable during the moratorium period. The principal shall be repaid in 36 installments after the moratorium period is over.

Is any turnaround time prescribed for MLIs under the Scheme for sanction of GECL?

Indicative turnaround time for loans under the Scheme shall be the same as those prescribed by the Department of Financial Services for credit support in the context of COVID-19 pandemic.

Will any guarantee fee be charged under the Scheme by NCGTC?

No, NCGTC will not charge any guarantee fee under the Scheme.

Will any processing fee be charged by MLIs for sanction of loans under GECL?

Since additional credit under GECL is to be provided to existing customers, no additional processing fee shall be charged by lenders.

Will MLIs ask for any additional collateral for the GECL facility?

No additional collateral shall be asked by MLIs for additional credit extended under GECL.

Will the categorization of existing loans extended through current Government schemes such as PMEGP or PMMY change if GECL is provided to such borrowers?

No. Existing loans extended through current Government schemes would continue to be categorized under that scheme as earlier. GECL under this Scheme shall be over and above the existing loan.

What will be the risk weight assigned to the credit extended under GECL?

Approval of RBI has been requested for assigning zero risk weight to the credit extended under GECL.

What will be the security on credit extended under GECL Scheme?

The credit under GECL will rank pari passu with the existing credit facilities in terms of cash flows (including repayments) and securities, with a charge on the assets financed under the Scheme to be created within a period of 3 months from the date of disbursal.

Will MLIs be required to enter into any agreement with NCGTC for the purpose of this Scheme?

Yes, MLIs will be required to submit an Undertaking to NCGTC for the purpose of this Scheme.

How will the guaranteed amount be paid by NCGTC to the MLIs on invocation of the guarantee?

75% of the guaranteed amount will be paid by NCGTC within 30 days of an eligible claim being preferred by the MLI concerned. The balance 25% will be paid on the conclusion of recovery proceedings or till the decree gets time-barred, whichever is earlier.

Who will issue detailed operational guidelines for ECLGS, and who will have the authority to modify provisions of the Scheme/operational guidelines?

NCGTC has issued the detailed operational guidelines for the Scheme. The Management Committee for ECLGS fund will have the authority to approve any changes to the current structure of the Scheme/ operational guidelines.

I run a business enterprise and have a GST registration. However, I am not registered as an MSME nor do I have Udyog Aadhar. My Bank also does not classify me as an MSME borrower. Am I eligible under the scheme?

You are eligible if:

  1. You have total credit outstanding of Rs 25 crore or less as on 29th Feb 2020
  2. Your turnover for 2019-20 was up to Rs 100 crore
  3. You have a GST registration or were not required to obtain such GST registration Udyog Aadhar or recognition as MSME is not required under this Scheme

My Bank/ NBFC has offered me a pre-approved loan of 15 percent only though the scheme mentions 20 percent. Can the Bank/ NBFC do so?

Under ECLGS, Banks/ NBFCs are to offer loans upto 20 percent. Actual loan extended can, therefore, be less than 20 percent. While the Bank/ NBFC is expected to be liberal in sanctioning such loans, it is also expected to evaluate credit proposals by using prudent banking judgement and use business discretion / due diligence in selecting commercially viable proposals and conduct the account(s) of the borrowers with normal banking prudence

I operate a lending business. Am I eligible?

No please. Typically lending institutions get funds from banks/ NBFCs through on-lending, refinance, asset purchase, securitization, assignment etc. There are therefore other windows available including the Partial Credit Guarantee Scheme and the Special Liquidity Facility.

Are all NBFCs eligible to become MLIs with NCGTC?

No. The NBFC must be registered with RBI, should be meeting the CRAR requirements prescribed by RBI and have been in the lending business for at least two years as on 29th Feb 2020.

The Managing Committee of the Scheme may prescribe additional qualification criteria from time to time.

What will be the procedure for claim settlement?

This will be advised in due course through additional guidelines to be issued.

Can new MSME borrowers get covered under the scheme?

ECLGS scheme is only for existing borrowers on the books of the banks as on 29th Feb 2020. Any New borrowers should be covered under ongoing CGTMSE and NCGTC schemes

Can co-applicant loans between the entity and the promoter or director get covered under the scheme?

For loans having co-applicant, only those existing loans where the entity is the primary co-applicant are covered under the Scheme for additional emergency funding

Are off-balance-sheet loans provided to MSME borrowers covered as part of the scheme?

No, the scheme does not cover the off-balance sheet exposure. Only on balance sheet exposures outstanding as on 29th Feb, 2020 are eligible to be covered under the scheme

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