New Delhi: The Narendra Modi government anticipates at least 15 per cent of the Rs 3 lakh crore worth of loans announced under the special credit line for businesses and micro, small and medium enterprises (MSMEs) will turn bad.
The collateral-free loan scheme was part of the Rs 21-lakh-crore package formulated by the Modi government to battle the effects of the Covid-19 pandemic on the country’s economy.
According to the scheme, the government will bear all losses in case of defaults on these loans as it will provide 100 per cent credit guarantee cover to banks and non-banking finance companies for such loans.
All firms with an outstanding loan of Rs 25 crore and with a turnover of Rs 100 crore are eligible for taking loans under the emergency credit line, subject to the cap of 20 per cent of outstanding credit.
A finance ministry official said the scheme is open to not only those who are registered as MSMEs but any business enterprise that meets the conditions prescribed.
“This means that not only MSMEs but firms in hospitality, travel and tourism and in other service sectors can avail of this credit facility. Our initial rough estimation is 15 per cent of the loans given under the facility may turn bad but this could change depending on how long it will take businesses to revive,” said a finance ministry official, who didn’t wish to be named.
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How the scheme will work
The Modi government will provide the guarantee via the National Credit Guarantee Trust Corporation (NCGTC), a government trustee company registered under the Companies Act.
The loans will have a tenor of four years and interest rates will be capped at 9.25 per cent. The borrowers have also been given a one-year moratorium on payment of the principal amount.
Due to the moratorium on loan repayment, however, the NPA situation will emerge only by the end of the next fiscal.
The finance ministry official said the ministry will provide capital to NCGTC this fiscal to help it underwrite guarantees for these loans but the capital infusion requirement for next year may be higher.
Economic activity crucial
Bankers said more of these loans could become non-performing assets (NPAs) if economic recovery takes longer than anticipated and businesses are forced to shut permanently.
“How long will the lockdown last? How long will it take to revive economic activity in big cities? When will the labour come back from their villages? There are too many uncertainties for businesses right now,” said an official with a Mumbai-based public sector bank, who didn’t want to be identified.
“MSMEs may not find it easy to survive, especially with their cash flows impacted due to delay in payments from bigger firms,” said the banking official.
“The bad debts may be substantially higher in this segment compared to others and because of this banks have been cautious. The government has promised a full credit guarantee precisely for this reason to encourage banks to lend more,” added the official.
In a note earlier this month, Care Ratings pointed out that though MSME NPAs may come in lower in the current year due to the moratoriums, they could “witness a spike in the next year, especially if the business environment remains challenging”.
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THERE ARE FEW WAYS WE SHOULD TRY TO RECOVER NPA’S:
1: UNDER SONIA GANDHI…..WHOEVER THE BIGGIES ARE “CORPORATES” WHO HAVE DEFAULTED MUST PAY BACK BY LITERALLY SURRENDERING HIS/HER ASSETS TO THE EXTEND THAT THE PERSON SHOULD OWN NO LESS THEN 1 HOME AND 1 CAR…….EVERYTHING SHOULD BE SEIZED.
2: FOR DEFAULTERS LIKE US – UNLESS GOVT WOULDNT THINK ABOUT FIXING TAX STRUCTURE, BORROWING RATES AND SETTING UP A BARE MINIMUM SALARY OF 50,000/MONTH OR 6 LAKH PER ANNUM……..YOU CANT RECOVER……EVERY COUNTRY YOU HAVE A REASONABLY GOOD MINIMUM WAGE… IN INDIA IF YOU PAY 8000 PER MONTH YOU ARENT GIVING ANYBODY A “BREATHING ROOM” FOR ANY EMERGENCIES….THATS WRONG. GOVT SHOULD “TAX” EACH INDIVIDUAL WITH MINIMUM YEARLY SALARY OF 6 LAKH AT 10%
3: INDIAN LAW OR IPC 420 – I DONT KNOW IF AT ALL ANY RECOVERY HAPPENS…..IF NOT THEN ANY MONEY WHICH IS SIPHONED AND PROVED BY THE VICTIM EASILY IN THE COURT…..POLICE SHOULD BE GIVEN FULL AUTHORITY TO USE FORCE TO SUCH AN EXTEND THAT RECOVERY HAPPENS ANYHOW BUT AT THE SAME TIME THE CRIMINAL SHOULD NOT DIE WHILE HE IS IN CUSTODY OR REMAND
4: EVERY BANK WHO HAVE HIRED AS “LOAN OFFICERS” – SHOULD BE PUT IN JAIL AS THEY WERE NEVER QUALIFIED AS OFFICERS AND WENT ON BLINDLY APPROVING LOANS IN HUNDREDS OF CRORES AND IN MANY CASES THOUSANDS OF CRORES WITHOUT USING ANY LOGIC!
5: FOLLOW POINT NO 1-4 OR ELSE SOON THIS COUNTRY WOULD COLLAPSE FINANCIALLY, UNDOUBTEDLY….. ALL BANKS ARE TECHNICALLY BANKRUPT….. “IF ITS EASY TO LEND AND HARD TO RECOVER” THEN ON WHAT BASIS BANKS ARE ACTUALLY CALLED BANKS? THERE IS SIMPLY NO MEANING LEFT
6: I WOULD SUPPORT FOR 1000 LASHES TO BE GIVEN IN PUBLIC FOR ANYBODY WHO STEALS MONEY OR SIPHONS MONEY OR DOESNT PAY MONEY FOR AMOUNT THAT STARTS IN LAKHS!
Government should provided loan to NPA of
msme .It sould be 3 time what loan they had taken early.If this not done no NPA will recover and they have to shutdown.
Please urgent loan Ruqermeent I am Delhi rented parsan my job security guard 15000 month pay my job in hrayana imt manswar
No bodar pass I am stat bussnis Rod sed veg biryani recipe please my 1846000302231958
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When banks will give these loans it is almost 3 weeks the sheme has announced. I visited bank they said they haven’t get any notification regarding this loan ?
The scheme has been notified. You can access it here: http://www.eclgs.com.
Throwing away public money does not get my vote. Neither in peacetime nor even in war. See how much sweat an ordinary Indian is required to produce on a NREGA site to earn about two hundred rupees a day. If the government estimates 15% of three trillion will go sour, so late in the day, when the banks already have immense NPAs – bound to swell further due to the pandemic – it should not be asking them to extend dodgy loans.
When the government guarantees lending on such a massive scale, lenders will find it easier to invoke government guarantee than commence cumbersome recocvery proceeding. Even borrowers will think twice before repaying the loan!
I am no economist but the loans must be restructured so NPA is less, also the Bad Bank idea may be worth trying
Nearly the ENTIRE AMOUNT will tum out to be NPAs. Mark my words. The loans are given without collateral. The beneficiaries will be BJP cronies. Out of the loan money itself, they will pay the due interest for some time, and then vanish.
Not 15%, 70% of MSME loans loan will not return due to the economic situation in the country