8 months after launch, Rs 20,000 cr subordinate debt scheme managed to benefit only this many MSMEs

Credit and Finance for MSMEs: Nearly eight months after the Modi government launched the Rs 20,000-crore subordinate debt scheme for stressed MSMEs, the number of beneficiaries as of February 4, 2021, stood at only 272 involving an amount of Rs 30.84 crore, according to the data shared by the MSME Minister Nitin Gadkari in a written reply to a question in the Lok Sabha. Launched in June 2020 and operationalized in August, the scheme intended to benefit 2 lakh MSMEs that are non-performing assets (NPAs) or stressed. The scheme was launched as part of the Rs 3.7-lakh-crore MSME package under the Rs 20-lakh-crore stimulus for the Atmanirbhar Bharat campaign.

Stressed or NPA MSME accounts as of April 30, 2020, are eligible under the scheme to secure credit equivalent to 15 per cent of their stake (equity plus debt) in the business or Rs 75 lakh whichever is lower. According to the scheme, promoters are required to invest the debt raised in the business as equity to improve liquidity and maintain the debt-equity ratio. While 90 per cent of the guarantee coverage would come under the scheme, the remaining 10 per cent would be contributed by promoters of the MSME. The scheme offered a 7-year moratorium for eligible accounts for paying the principal amount while the maximum period for repayment was 10 years.

Maximum beneficiaries under the subordinate debt scheme belonged to Tamil Nadu (41) followed by Punjab (36), Maharashtra (25), Madhya Pradesh (24), Telangana (22), Karnataka (22), etc., the data showed. However, the MSME NPA ratio had increased to 12.8 per cent in June 2020, from 11.4 per cent in June 2019, according to TransUnion Cibil October 2020 edition of MSME Pulse report. While private banks’ MSME NPA ratio jumped to 5.8 per cent from 4.6 per cent during the said period, the ratio for public sector banks increased to 18.6 per cent from 17.5 per cent.

Importantly, the increase in MSME NPAs had come amid slow bank credit growth between March and June last year. From 7.7 per cent growth in March, the deployment grew only by 3.3 per cent in April followed by 1.5 per cent in May before it scaled back to 6.5 per cent in June, according to the RBI data. The central bank had in August last year extended the MSME debt restructuring window until March 31, 2021, “provided the borrower’s account was classified as standard with the lender as on March 1, 2020,” according to the statement by the central bank on developmental and regulatory policies to boost liquidity support for financial markets.