Slowdown in loans sanctioned to struggling businesses, MSMEs

There has been some slowdown in loans sanctioned to struggling businesses and micro, small and medium enterprises (MSMEs) over the months of October and November under the ₹3 lakh crore emergency credit guarantee scheme announced by the government in May this year.

In its first three months of operations, the Emergency Credit Line Guarantee Scheme (ECLGS) Fund had led to sanction of soft term loans of ₹1.86 lakh crore, of which ₹1.32 lakh crore had been disbursed to ₹27.09 lakh borrowers by September 29.

Between September 29 and December 4, loans sanctioned under the scheme rose by just ₹19,094 crore to a little over ₹2.05 lakh crore. These sanctions pertain to 80.93 lakh accounts.

Disbursals during this period increased by ₹26,380 crore with over 13.4 lakh more borrowers benefiting, taking the total amount paid out under the scheme to nearly ₹1.59 lakh crore. The total borrowers receiving funds under the scheme now stand at 40.49 lakh.

Key element

The ECLGS scheme is a key element of the government’s stimulus and support measures for firms battered by the lockdown restrictions put in place in March to curb the COVID-19 pandemic. It provides additional working capital finance for 20% of a borrower’s outstanding credit as on February 29, 2020. The financing is in the form of a term loan at a concessional rate of interest.

In November, the government had announced the expansion of the scheme to cover even larger firms operating in healthcare and the 26 most-stressed sectors identified by the K.V. Kamath Committee appointed by the central bank. Firms with outstanding loans of ₹50 crore to ₹500 crore from sectors such as construction, real estate, textiles, power, cement, hotels and tourism, are eligible for support.

Aid to NBFCs

Similarly, the ₹45,000-crore Partial Credit Guarantee Scheme 2.0 to enable non-banking finance companies (NBFCs), housing finance companies and micro-finance institutions to undertake fresh lending to MSMEs and individuals has recorded a tepid offtake between September 25 and December 4.

Banks had approved purchase of loan portfolios of such entities worth ₹25,505 crore and purchased portfolios worth ₹16,401 crore by September 25. Transactions being negotiated or awaiting approval at the time were around ₹3,171 crore at the time.

As on December 4, the portfolios approved for purchase stood at ₹27,794 crore, rising by just ₹2,289 crore. The portfolios at the negotiation/approval stage had also declined to ₹1,400 crore.

The latest numbers, shared with Finance Minister Nirmala Sitharaman at a review meeting on the progress of the various elements of the Atma Nirbhar Bharat package on December 11 didn’t include the extent of approved portfolios purchased since the Minister’s last review meeting on the issue held on October 1.

The government has now extended the time line for banks to purchase bonds or commercial papers under the scheme till December 31.