3 Lakh Crore Emergency Credit Line Scheme: Explained

The pandemic crisis has sent economies all over the world in the doldrums. As per the UN, India’s GDP growth for 2020 has been projected at a worrisome 1.2%. While almost all businesses across sectors are being hit in some way or the other, it is the MSMEs which require the most attention.

What are MSMEs?

There are 6.33 crore MSMEs or Medium, Small, and Micro Enterprises in India. The classification between medium, small, and micro was made on the basis of investment. Micro enterprises were classified as those with an investment of upto Rs. 25 Lakhs (manufacturing) or upto Rs. 10 Lakhs (services). Small enterprises were defined as those with an investment of upto Rs. 5 crore for manufacturing or upto Rs. 2 crore for services. Meanwhile, medium enterprises were defined as those with an investment of upto Rs. 10 crore for manufacturing or upto Rs. 5 crore for services.

Government’s Pandemic Relief Package for MSMEs

Soon after the Prime Minister’s announcement of an economic relief package worth Rs. 20 lakh crore, the government put forth the most crucial part of the efforts, a package for the MSMEs. The lockdown package for MSMEs includes collateral free loans for MSMEs, subordinate debt, equity infusion, and a change in the definition of MSMEs, which have all been pushed towards breathing life into 45 lakh units by providing equity and debt support, safeguarding jobs, helping them grow, and thrusting them towards a restart.

Expanding the Ambit of Definitions

According to the Finance Minister, there has always been a fear amongst MSMEs that they will lose certain benefits if they outgrow the size defined for them. This is why the government has expanded the definition and allowed many more enterprises to reap the benefits of the MSME package.

Micro enterprises will now be those with an investment of up to Rs. 1 crore and a turnover of up to Rs. 5 crore. Small enterprises will be those with an investment of up to Rs. 10 crore and a turnover of upto Rs. 50 crore. Medium enterprises will be the ones with an investment limit of Rs. 20 crore, with a turnover criterion of Rs. 100 crore.

Rs. 3 Lakh Crore Emergency Credit Line

The Rs. 3 lakh crore relief measure, called an ‘emergency credit line’, has been announced for MSMEs with an existing outstanding credit of upto Rs. 25 crore or the ones which had a turnover of lesser than Rs. 100 crore. These collateral free loans for MSMEs, which can be availed before the 31st of October, 2020, will come with a 4-year tenure with a 12-month moratorium. This means that repayment does not begin until 12 months after securing the loan. The interest rate will be capped.

Why is it Rs. 3 Lakh Crore?

It has been estimated that the total amount of outstanding loans taken by MSMEs from banks and NBFCs (Non-Banking Financial Companies) would be close to Rs. 16 lakh crore to Rs. 18 lakh crore. With an assumption that out of these, 80% are loans for working capital, there has to be an incremental funding need of 20%, which amounts to around Rs. 3 lakh crore. The government’s expectation is that the collateral free loans for MSMEs will help them recover with another loan; hoping that with a survival boost, they should have the capacity to pay loans back after the crisis the way they were able to before.

100% Government Guarantee

Usually, loans to MSMEs are given against a collateral. However, the government has removed this obstacle as well. For the above mentioned loans, no guarantee fee or collateral will be needed. The government will provide 100% guarantee, which means that if the firm fails to pay back, the government will cover for it.

Other Measures

Apart from the Rs. 3 lakh crore emergency credit line, the government has also announced a string of other measures as part of the pandemic relief package for MSMEs.

• A Rs. 20,000 crore subordinate debt package for MSMEs which are stressed or NPA (Non Performing Assets)
• A Fund of Funds for an equity infusion of Rs. 50,000 crore.
• Global tenders will now be disallowed for government procurement tenders upto Rs. 200 crore to eliminate unfair competition for Indian MSMEs.
• FinTech will be used for enhanced transaction-based lending, and e-market linkage will be utilized in place of trade exhibitions.

If you own an MSME, the Rs. 3 lakh crore emergency credit line and supporting measures must have come as a huge relief to you. If you are looking for more small loan options, there’s a collateral-free, easy-to-secure option for you called Bajaj Finserv Business Loan. The Bajaj Finserv Business Loan, available on Bajaj Markets, is a collateral-free loan of up to Rs. 30 Lakhs that you can avail online with minimal documentation. In addition, you can enjoy flexible repayment tenures of up to 60 months, along with access to many value added services.

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