MSMEs remain prime focus for revival with ‘Aatmanirbhar Bharat Package’

The Great Lockdown | Volume 1 | Issue 4

Covid19 has hit businesses across nation but none more than MSME sector. To understand what’s on the line, it is imperative to understand the criticality of MSME sector. Country’s economic growth is vastly contributed by MSME sector with broad network of 6.3 crore units and share of 35% in GDP and about 45% of total manufacturing output.

Per study commissioned by All India Manufacturing Organization, 25% of MSME units would face possible closure if lockdown extends beyond 4 weeks while 43% would be at risk if extension is beyond 8 weeks. With MSME forming backbone of Indian economy, the Government had to announce immediate relief measures to shore up the confidence in this key sector.

To put things into perspective, the financial package (INR 3L crore) for MSMEs announced by Finance Minister is approximately 17% of total credit outstanding to MSMEs as on end of FY 2019. In this article, we have highlighted the key measures undertaken, areas where further clarity is required and next steps.

Revised definition of MSME with no distinction between manufacturing and services and new consideration for top line:

MSME criteria change — Atmanirbhar Abhiyan

INR 3L crore collateral free loan for units with outstanding credit limit of INR 25 crore (as on 28th February, 2020) and turnover of less than INR 100 crore.

  1. Borrowers with DPD up to 60 days are eligible to avail benefits.
  2. Loan to have 4-year tenor and 12 months moratorium with no guarantee fee or fresh collateral.

Updates as per order passed on 20th May 2020:

  1. Borrowing interest rates at 9.25% p.a. from banks and 12.5% p.a. from NBFCs.
  2. 100% guarantee under National Credit Guarantee Trustee Company Limited.
  3. Benefits of the scheme can be availed till 31st October, 2020 or till INR 3L crore is sanctioned, whichever is earlier. Scheme expected to benefit 4.5 million units.
  4. Loan up to 20% of outstanding credit can be availed.

For stressed MSMEs, sub-debt provision of INR 20,000 crore basis partial credit guarantees back by GoI. Sub-debt to provided to the promoters to the extent of 15% of their stake in unit with upper cap of INR 75L.

Fund of fund corpus of INR 10,000 crore for MSMEs which are viable but need support for expansion. Fund structure expected to provide leverage of INR 50,000 crore at daughter funds level.

Global tenders to be disallowed in Government procurement tenders up to INR 200 crore.

E-market linkages to be provided in absence of trade fairs and exhibitions.

Receivables from Central Government and PSU to be released within 45 days.

Basis of underwriting to extend credit will be a challenge as the norms and historical information around profits, working capital levels etc. under which credit was extended cannot be relied upon.

Evaluate fitment of your firm as well as upstream supply chain as per revised criteria.

Initiate registration process and avail scheme benefits.

In case of upstream supply chain, obtain requisite registration documents from vendors prior to classifying as MSME. Reassess landed cost considering payment terms of 45 days.

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