The Hon'ble Prime Minister under his vision and call for ATMA Nirbhar
Abhiyan / Self Reliant India Movement based on the 5 pillars of ATMA NIRBHAR BHARAT being
Economy, Infrastructure, System, Vibrant Demography and Demand has allotted Rs.
20 lakh crores equivalent to 10% of India's GDP as Special economic and
comprehensive package cater to the needs of the current stressed economy with
the clarion call, “It is time to become vocal for our local products and make
The Hon'ble Finance Minister announced in her press briefing regarding various
allotment of funds for MSMEs under various heads and she also elaborated the new
definition of MSME. The following are my views on the takeaways.
1. New definition of MSME.
- The classification of MSME as Manufacturing Enterprise and
Service Enterprise has been abolished and merged under one category of MSME.
- A new dimension has been introduced in the definition apart from
investment in plant and machinery which is of turn over.
- As per the new classification the following are the new norms for
classification of MSME.
||Rs. 1 crore
||Rs. 5 crores
||Rs. 10 crores
||Rs. 50 crores
||Rs. 20 crores
||Rs. 100 crores
- Whereas the increase in investment is a welcome change, the logic and
the basis of restricting the turnover is not explained. The pertinent
question is when the investment is substantially increased, the capacity for
production is also increased in proportion to the investment in which case,
if the turn over goes beyond the cut-off point, the micro enterprise is
poised to graduate as small enterprise which again is very favourable to the
enterprise. But, if the small enterprise is promoted to the medium
enterprise status, is it good for them?
Even though any expansion is
desirable for any enterprise, the small enterprise will lose its privilege
coming out of the statutory commitment of banks to MSE sector. In this connection a reference may be made to the
Code Of Bank's Commitment To Micro And Small Enterprises with its amendments. Hence,
in my opinion the introduction of turn over norms need not be introduced.
- The announcement does not specify the date of implementation of the new
definitions which also requires the necessary changes in the MSME Act
and the RBI notification on the matter.
- When the new nomenclature is implemented, it may necessitate reappraisal
and reassessment of the financial requirements of the enterprises. If it is
going to be introduced immediately, the effect of such changes will have a
bearing on the package now announced.
2. Rs. 3 lakh crores collateral-free Automatic Loans for business, including
- The aforesaid package is to be made available to meet operational
liabilities built up, buy raw materials and to restart business. It seems
that the offer is conditional not to make it available to past commitments
and existing liabilities. An explanation is required.
- Emergency credit line to business / MSMEs from banks and NBFCs
up to 20% of the entire outstanding credit as on 29.02.2020. Does this mean that
the emergency credit availability is restricted to 20% of the existing limit as
on 29.02.2020? What if there is a credit balance available on the day or the
limit is not fully utilised in the accounts?
In this connection a reference may be made to RBI circular FIDD. MSME & NFS.
BC.No.60/06.02.31/2015-16 dated August 27, 2015 on Streamlining flow of credit
to Micro and Small Enterprises (MSEs) for facilitating timely and adequate
credit flow during their ‘Life Cycle' wherein RBI instructed the banks to
sanction “STANDBY CREDIT FACILITY” for funding capital expenditure and working
capital at the time of sanction itself to be disbursed in case of liquidity
problems faced by the enterprise. Besides, managers and executives also are
given discretionary powers to be used in an emergency situation. But such powers
are hardly used by the banks. Such being the case how the banks are going to
implement the package is to be seen.
- Borrowers with up to Rs. 25 crores outstanding and Rs. 100
crores turnover are eligible for the collateral free automatic loan. What about
the borrowers having outstanding more than Rs.25 crores and Turn Over more than
Rs.100 crores coming under MSME category? Why this discrimination?
- Loans to have 4-year tenor with moratorium of 12 months on principal
repayment. The emergency credit is to be made available by way of working
capital term loan and not by way of cash credit. It seems that existing
terms loan/s, if any, will continue with the same terms and conditions of
the then sanction. If so, how the cash flow is to be ensured to fulfill the
repayment of all the term loans?
- It is stated that the interest to be capped. But the rate of interest to
be charged is not given but may be left with banks. If so, whether uniform
rate of interest will be charged by all banks and NBFCs and whether rate
of interest will be on fixed basis or floating basis to be paid as and when
charged. Will NBFCs be able to charge the same interest as that of banks?
- A realistic cash flow will have to be arrived at taking into account the
total repayment of all existing loans and working capital along with the
incremental emergency loan.
- 100% credit guarantee cover to banks and NBFCs on principal and
interest. But considering the experience with banks and financial institutions
with regard to availing collateral free loans available under already existing
CGTMSE to the extent of Rs. 2 crores, it should be seen how the banks and NBFC
are going to react or pro-act to the announcement.
3. Rs. 20000/- crores subordinate debt for stressed MSMEs.
- Government of India will facilitate provision for Rs.20000.00 crores as subordinate debt to MSMEs and functioning MSMEs which are NPA or are
stressed will be eligible. How the Government is going to facilitate the
provision of the amount as subordinate debt is not clear. The definition of
functioning NPA is not made out. Does it include accounts classified as NPA and
legal action initiated already but is functioning unit? Is it applicable to
accounts already assigned to ARCs but functioning and also those NPA accounts
whose settlement have taken place by way of restructuring / OTS but continuing
- Government will provide a support of Rs. 4000 crores to CGTMSE
who will provide partial support to banks. How the banks are going to implement
the scheme under partial support from CGTMSE in the background of the reluctance
of the banks to sanction collateral free loan up to Rs. 2 crores already
available under the existing CGTMSE guarantee cover.
- Promoters of MSME will be given debt by banks, which will then
be infused by promoter as equity in the unit.
The operational modality of the schemes announced is to be elaborated as to the
implementation of the schemes by banks.
4. Rs. 5000.00 crores equity infusion for MSMEs through fund of funds and
global tenders to be disallowed up to Rs. 200 crores.
The functional and implementation details are to be made known as to how these
packages will be implemented effectively. However, global tenders are to be
disallowed is a well come step giving MSMEs better level playing field.
5. The package does not offer any relief to those who availed housing loans
and default repayment leading to their account being classified as NPA due to
either retrenchment or cut in the salary and those students who availed
educational loan but are not able repay the loan after completion of their
studies on account of non-availability of jobs. What is going to be their fate?
Some relief package is to be considered to mitigate their hardships.
6. Yet another unfortunate section is those employees who lose their jobs on
account of legal actions taken by the bank to recover the dues and some relief
measure must be considered for their survival.
The aforesaid package will enable the MSME sector to be more competitive and
will help them to realise the vision and call of our Hon'ble Prime Minister for
ATMA Nirbhar Abhiyan / Self Reliant India Movement.
The vision of the nation is made and the mission is articulated. The result
depends upon the how the implementation of the plans and programmes is carried
out down the line with the sincerity of purpose and effective implementation
with diligence, determination, dedication and commitment. The package announced
may not satisfy all the sections of people. But an honest attempt has been made
and to be implemented and if any impediments or hardships come in the way, then
a course correction can be initiated.
The government has committed Rs. 2 lakh crores as part of their commitment and
it is time that the entrepreneurs, the industry and commerce along with the
banks and financial institutions including all stake holders and general public
should offer their unconditional co-operation and commitment keeping aside their
differences and prejudices and looking into the brighter side for the ultimate
realisation of making our nation a formidable leading economic force and a
global player to be recognised globally for which we have to work united and in
unison to achieve the vision.
Let us take a pledge for the realisation of the vision by asserting that we have
to, we shall and ultimately, we have achieved it.
Written By: T. R. Radhakrishnan - Banking & Management Consultant, NPA
Resolution Consultant, H. R. Trainer: Corporates, Colleges & Schools, &
Address: No. 8, Morya Gardens, Indoe.452016 (Madhya Pradesh)
E-mail: [email protected]