MSMEs struggle for loans despite govt's credit guarantee scheme

The MSME sector says that private banks are not just being reluctant in extending loans under the government’s Rs 3 lakh crore emergency credit line, but also charging higher lending rates than public sector banks.

Business Desk, ETV Bharat: The government’s relief package designed specifically for the country’s micro, small and medium enterprises (MSMEs) to arrest the economic havoc caused by the coronavirus outbreak is proving to be insufficient and half-baked.

MSMEs say they are facing challenges in getting loans under the Rs 3 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) launched by the central government as part of the Atmanirbhar Bharat package.

Anil Reddy, ex-president, Federation of Telangana and Andhra Pradesh Chambers of Commerce and Industry (FTAPCCI), said that private banks have seemed to be reluctant in extending loans to small companies in certain cases due to past experiences.

“While PSBs (public sector banks) are proactive in extending loans, private banks still seem to be wary due to fears of non-payment,” said Reddy.

“Also, while PSBs are lending at an average interest rate of around 10%, private banks are charging much more than this,” he added.

MSMEs are also seeking a reduction in lending rates offered by private banks, given the fact that even fixed deposits rates are hovering around 5-6% currently. In fact, Some MSME representatives are now talking of interest-free loans for a period of six months in order to meet liquidity requirements. Currently, the scheme offers only the provision of collateral-free loans.

“Charging over 10% in these troubled times will push more MSMEs out of the business,” said Reddy.

K.B. Arasappa, president, KASSIA (Karnataka Small Scale Industries Ltd), also said that he has urged finance minister to reduce the interest rate on bank loans for MSMEs to 6% for a certain period of period.

“Also, it needs to be ensured that schemes are really implemented at the level of banks without complications or red tape,” Arasappa added.

Signs of subdued lending are visible in the fact that banks have disbursed just over Rs 1 lakh crore of loans to MSMEs till 20 August 2020 of the Rs 3 lakh crore allocated for the scheme.

Last week, Reserve Bank of India (RBI) governor Shaktikanta Das had also cautioned lenders against becoming overly risk-averse while lending money as it may not work in their favour.

“Remaining overly risk-averse may seem to be a measure of self-immunisation, but it will be self-defeating as it would affect the bottom lines (profit) adversely,” he had said.

Meanwhile, finance minister Nirmala Sitharaman on Tuesday said that the government is open to further tweaking the credit guarantee scheme.

In a meeting with the members of CII, Sitharaman reportedly said: “The (Rs) 3 Lakh Crore scheme is open for professionals now and government is open to more tweaking, changes if required.”