They say that every crisis brings with itself an opportunity. Likewise, the Covid-19 pandemic brought with itself an opportunity for India, that was identified and announced by the Prime Minister of India as ‘Atmanirbhar Bharat’ or making India self-reliant. When ‘Make in India’ as a concept was announced in 2014, it was successful in igniting the idea and now is an opportune time to execute that idea. But, what does ‘Atmanirbhar Bharat’ really mean? What does it imply for the future? More so, what does it mean for the MSME sector and how the sector can leverage it?
The MSME sector is the most vibrant and dynamic industrial sector contributing about 40% to the GDP and significantly to the exports of the country. Multiple government policies and decisions emphasize that the MSME sector will act as the bedrock for economic revival.
The MSME sector in India is 2nd largest to agriculture with high employment and contribution in terms of foreign exchange earnings, the sector has established its significance in the macro economic value chain. It is only fair for us to now unleash the potential of this sector by leveraging the ‘Make in India’ concept and help this sector thrive post the Covid-19 pandemic.
As per a recent survey done by Prione, about 23% of MSME have indicated that working capital has been a primary concern, making it difficult for them to sustain or restart their businesses. In order to relieve the MSME sector from the current distress caused by the pandemic, the government has rolled out stimulus packages. So let us discuss the Guaranteed Emergency Credit Line loan under Covid-19 and how the eligible MSMEs/ Business Enterprises can avail it?
What is the Guaranteed Emergency Credit Line (GECL)?
The GECL is a loan for which 100% guarantee would be provided by National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs), and which will be extended in the form of additional working capital term loan facility in case of Scheduled Commercial Banks (SCBs) and Financial Institutions (FIs), and additional term loan facility in case of Non-Banking Financial Companies (NBFCs), to eligible MSMEs/ Business Enterprises and interested Pradhan Mantri Mudra Yojana (PMMY) borrowers. Credit under GECL would be up to 20% of the borrower’s total outstanding credit up to Rs. 25 crore, excluding off-balance sheet and non-fund based exposures , as on 29 th February, 2020, i.e., additional credit shall be up to Rs. 5 crore.
|Objective||Purpose of Loan|
|The Scheme is a specific response to the unprecedented situation of COVID-19. It seeks to provide relief to the MSME sector by incentivizing MLIs to provide additional credit of up to Rs. 3 lakh crore at low cost.||The purpose of this loan is enabling MSMEs to meet their operational liabilities and restart their businesses.|
|Target Customer||Max Loan Amount and Loan Instrument|
|Eligible MSMEs/ Business Enterprises and interested Pradhan Mantri Mudra Yojana (PMMY) borrowers.||20% of the borrower’s total outstanding credit up to Rs. 25 crore, excluding off-balance sheet and non-fund based exposures , as on 29th February, 2020, i.e., additional credit shall be up to Rs. 5 crore.|
All MSME borrower accounts combined outstanding loans across all MLIs of up to Rs. 25 crore as on 29.2.2020, and annual turnover of up to Rs. 100 crore in FY 2019-20.
The Scheme is valid only for existing customers on the books of the MLI.
Borrower accounts should be classified as regular, SMA-0 or SMA-1 as on 29.2.2020. Accounts classified as NPA or SMA-2 as on 29.2.2020 will not be eligible under the Scheme.
The MSME borrower must be GST registered in all cases where such registration is mandatory.
|Interest Rate||Security and Documentation|
For Banks and FIs, one of the RBI prescribed external benchmark linked rates (up to 9.25%)
For NBFCs, the interest rate on GECL shall not exceed 14% per annum
Simple one page application
Existing security. No additional security required
|The Scheme would be applicable to all loans sanctioned under GECL during the period from May 23, 2020 to 31st October, 2020, or till an amount of Rs. 3 lakh crore is sanctioned under GECL, whichever is earlier.||48 Months (12 month moratorium interest serving) - A moratorium period of one year on the principal amount shall be provided for GECL funding. Interest shall, however, be payable during the moratorium period. The principal shall be repaid in 36 installments after the moratorium period is over.|
WHAT IF A BORROWER HAS LOAN ACCOUNTS WITH MULTIPLE LENDERS?
- If a borrower has existing limits with multiple lenders, GECL may be availed either through one lender or each of the current lenders in proportion depending upon the agreement between the borrower and the MLI.
- In case the borrower wishes to take from any lender an amount more than the proportional 20% of the outstanding credit that the borrower has with that particular lender, a No Objection Certificate (NOC) would be required from all other lenders.
- No NOC will, however, be required if the GECL availed from a particular lender is limited to the proportional 20% of the outstanding credit that the borrower has with that lender.
HOW TO APPLY FOR THE SCHEME?
- Submit Application Form
- Supporting Documents
- CMA with 3 year projections
- Stock Statement with ageing
- Book debts statement with ageing.
- GST returns of past 12 months
- Month-wise sales since April’2019 to till date.
- Monthly sales during corresponding month of last year VS current year.
- Last year average monthly operational expenses including salary & wages.
- Loss / delay of any other income due to lockdown e.g. refund of Input Credit
- Business expenses i.e. wage bills, maintenance expenses, renewal of insurance premium, purchase of raw materials, advance payment to suppliers etc. to be incurred.
- Sanction Letter !!!
The Scheme provides credit availability to MSMEs and small businesses to meet their operational liabilities and revive their businesses which got affected due to two months of countrywide lockdown. It will bring a positive impact on the economy and will mitigate the distress caused by the Corona pandemic.
Thus, all the eligible MSME’s should take the benefit of this scheme before the amount of 3 lakh crore sanctioned by the government is exhausted.