June , 2020
MSMEs need immediate boost
00:13 am

Aritra Mitra


Prior to the Prime Minister’s announcement of the economic package, Rajkiran Rai G., Managing Director and CEO, Union Bank of India while participating in a webinar organised by Bharat Chamber of Commerce observed that extending credit to MSMEs was not the only solution as it will destroy the leveraging power of these units. He advocated the fact that the banks following the guidelines of RBI had already offered 10% additional working capital limit which was pre-approved and collateral-free. SS Mallikarjuna Rao, Managing Director and CEO, Punjab National Bank (PNB) told BE about the additional working capital limits up to 25% to the existing MSME borrowers having aggregate exposure of `5 crore to meet out their temporary liquidity mismatch. He added, “Under PNB COVID-19 Emergency Credit Facility (PNB-CECF) additional credit of 10% of the existing Fund Based Working Capital limits (FBWC) with maximum amount of `100 crore is provided to meet statutory dues.”

From the macro-economic point of view, Rai suggested that a special Interest Subvention Scheme for all categories of MSMEs, having good credit history might be devised to address the present problem of liquidity issue. He also expressed his strong feelings for internal rating for MSMEs as it was a serious problem, as most of the agencies followed the rules devised for the corporates. He focused on need of a different benchmarking of rating for MSME loans.

Initiatives for the MSMEs

In the press conference, while announcing the measures for the economic stimulus package, the Finance Minister (FM) Nirmala Sitharaman revised the structures of the MSMEs. Sitharaman stated that the government has revised the definition of the MSMEs to allow those units with investment up to `1 crore to be termed as micro units in place of `25 lakh at present. She also added that the units having a turnover of up to `5 crore will be termed as micro units. Responding to the long pending demands for revisions, Sitharaman said that a turnover-based criterion is being introduced to define the small businesses. Several experts and industry insiders are of the opinion that because of the old definition, many companies lost out on benefits but the new definition may lead to higher turnovers helping companies to grow. 

Among other measures, she also announced a collateral free loan of `3 lakh crore for the MSMEs that will come for a tenure of four years without any repayment for 12 months. She said that this will benefit 45 MSME lakh units across the country. However, the stimulus package has received mixed responses from the industry insiders. Animesh Saxena, President, Federation of Indian Micro and Small and Medium Enterprises (FISME) informed media, “We needed oxygen and immediate ventilator. If I talk in medical terms, most of the MSMEs need ventilator. If they are not given any benefit and immediate support, they will not survive 3-4 months of zero business.” Top MSME industry bodies have reacted to the stimulus package stating that the while the sector needed ventilator, the government has prescribed medicines.


Despite the FM’s announcements, industry insiders doubted the effectiveness of the initiative. A banking executive in Kolkata from a nationalised bank informed BE, “Essentially, the money is lent only after evaluating the businesses. A meeting was scheduled to take place to discuss the FM’s announcements but the recent cyclone in West Bengal has pushed it indefinitely.” Banking sources state that the bankers are expecting detailed guidelines from the government or the Reserve Bank of India (RBI) on the MSME schemes. TransUnion Cibil reported to media that the loans worth `232,000 crore of MSMEs are at a higher risk of becoming non-performing assets (NPAs). If some of the loans being given to MSMEs become NPAs, the liability will come to the government through the credit guarantee fund.

Following the Prime Minister’s announcements for an economic stimulus, there were expectations from the MSME sector regarding a liquidity injection for the sector. However, the FM’s announcements have left the sector disappointed. Saxena told media, “At the end we are seeing that it is only loan without guarantee. Rest all is frivolous. In this kind of crisis with mounting losses and no business we were expecting that government will come with direct support.”

Earlier, FM had announced that the government would pay the employees’ as well as the employers’ share of the Provident Fund (PF) for three months since March. In the recent announcement, the FM notified that this will be extended till August. However, this benefit will only cover those establishments with up to 100 employees and out of which 90% earn a monthly salary of less than `15,000. Industry insiders stated that this will leave out most MSMEs. Chandrakant Salunkhe, President, Small and Medium Business Development Chamber of India proclaimed the loans and the other benefits offered as gimmick. He told media, “Only those MSMEs which are capable would qualify for fresh loan and those who are grappling with the crisis will eventually close down.”


Industry insiders are of the opinion that the Public Sector Units (PSUs) and other government agencies should release the long-standing payments of the MSMEs so that the amount can be invested for generating more business.

Amidst all these announcements and demands, several experts feel that the government has clearly focused on the supply side. At present, there is a scarcity of purchasing power for the common people, hence, if the demand side is not addressed, it will be an impossible task on the part of the business organisations to achieve the self-reliance that the Prime Minister highlighted in his last address.


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