Bank Sanctions Against the Economic Package Recently Announced

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On May 12, the Prime Minister, Mr. Narendra Modi, announced a special economic package of Rs 20 lakh crore (equivalent to 10% of India’s GDP) with the aim of making the country independent against the tough competition in the global supply chain and to help in empowering the poor, labourers, migrants who have been adversely affected by COVID.  Following this announcement, the Finance Minister, Ms. Nirmala Sitharaman, through five press conferences, announced the detailed measures under the economic package. Out of such announcements the FM announced 1. the Collateral free loans for business. 2. Corpus for MSMEs 3. Subordinate Debt for MSMEs 4.Schemes for NBFCs 5.Relif for Employees provident Fund 6.Statutory PF contributions and 7.Street Vendors.

As of now till 9th July 2020 following measures have been brought into the picture by the F.M Ms. Nirmala Sitharaman.

Banks sanctions about Rs 1.20 lakh crore loans to MSMEs under credit guarantee scheme

The finance ministry on Friday said banks have sanctioned loans of about Rs 1,20,099 crore under the Rs 3-lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) for the MSME sector reeling under economic slowdown caused by the COVID-19 pandemic.

However, disbursements against this stood at Rs 61,987.90 crore till Thursday (July 9) under the 100 per cent ECLGS for micro, small and medium enterprises (MSMEs).

The scheme is the biggest fiscal component of the Rs 20-lakh crore Aatmanirbhar Bharat Abhiyan package announced by Finance Minister Nirmala Sitharaman in May.

The latest numbers on ECLGS, as released by the finance ministry, comprise disbursements by all 12 public sector banks (PSBs), 22 private sector banks and 21 non-banking financial companies (NBFCs).

“As of 9 July 2020, the total amount sanctioned under the 100 per cent Emergency Credit Line Guarantee Scheme by #PSBs and private banks stands at Rs 1,20,099.37 crore, of which Rs 61,987.90 crore has already been disbursed,” the finance minister said in a tweet.

Under the ECLGS, the loan amounts sanctioned by PSBs increased to Rs 68,145.40 crore, of which Rs 38,372.88 crore has been disbursed as of July 9, she said.

Against the announcements listed below the Government brought into  the above accomplishment data as mentioned data as presented above .

Brief Highlights of the Announcements of  the detailed measures under the economic package were as  under:

Collateral free loans for businesses: All businesses (including MSMEs) will be provided with collateral free automatic loans of up to three lakh crore rupees.  MSMEs can borrow up to 20% of their entire outstanding credit as on February 29, 2020 from banks and Non-Banking Financial Companies (NBFCs).  Borrowers with up to Rs 25 crore outstanding and Rs 100 crore turnover will be eligible for such loans and can avail the scheme till October 31, 2020.  Interest on the loan will be capped and 100% credit guarantee on principal and interest will be given to banks and NBFCs.
 Corpus for MSMEs: A fund of funds with a corpus of Rs 10,000 crore will be set up for MSMEs.  This will provide equity funding for MSMEs with growth potential and viability.  Rs 50,000 crore is expected to be leveraged through this fund structure.1

Subordinate debt for MSMEs: This scheme aims to support to stressed MSMEs which have Non-Performing Assets (NPAs).  Under the scheme, promoters of MSMEs will be given debt from banks, which will be infused into the MSMEs as equity.  The government will facilitate Rs 20,000 crore of subordinate debt to MSMEs.  For this purpose, it will provide Rs 4,000 crore to the Credit Guarantee Fund Trust for Micro and Small Enterprises, which will provide partial credit guarantee support to banks providing credit under the scheme.

Schemes for NBFCs: A Special Liquidity Scheme was announced under which Rs 30,000 crore of investment will be made by the government in both primary and secondary market transactions in investment grade debt paper of Non-Banking Financial Companies (NBFCs)/Housing Finance Companies (HFCs)/Micro Finance Institutions (MFIs).  The central government will provide 100% guarantee for these securities.  The existing Partial Credit Guarantee Scheme (PCGS) will be extended to partially safeguard NBFCs against borrowings of such entities (such as primary issuance of bonds or commercial papers (liability side of balance sheets)).  The first 20% of loss will be borne by the central government.  The PCGS scheme will facilitate liquidity worth Rs 45,000 crores for NBFCs.

Employee Provident Fund (EPF): Under the PM Garib Kalyan Yojana, the government paid 12% of employer and 12% of employee contribution into the EPF accounts of eligible establishments for the months of March, April and May.  This will be continued for three more months (June, July and August).  This is estimated to provide liquidity relief of Rs 2,500 crore to businesses and workers.  

Statutory PF contribution: Statutory PF contribution of both the employer and employee will be reduced from 12% to 10% each for all establishments covered by EPFO for next three months.  This scheme will apply to workers who are not eligible for the 24% EPF support under PM Garib Kalyan Package and its extension.   However, Central Public Sector Enterprises (CPSEs) and State Public Sector Units (PSUs) will continue to contribute 12% as employer contribution.1

Street vendors: A special scheme will be launched within a month to facilitate easy access to credit for street vendors.  Under this scheme, bank credit will be provided to each vendor for an initial working capital of up to Rs 10,000.  This is estimated to generate liquidity of Rs 5,000 crore.

“Merely announcements of package will not accomplish the purpose and The Government needs to Ensure that the flow and Implementation of such Packages on the  ground level should be  properly monitored and should meet the objective behind it.”

Thanks & Regards

CA Pankaj Mishra Mishra

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