As businesses halt due to the nationwide foreclosure, banks and industries have demanded government guarantees on the loans. Small businesses, with limited cash flow, have been hit the hardest and, unlike their larger counterparts, are unable to cope with the disruption.
The lenders, through their lobbying body, the Association of Indian Banks (IBA), have suggested that the government guarantee any additional loans to small businesses. Bankers estimate that the sector needs additional loans of at least ??50,000 crore and a government guarantee will allow risk-averse banks to start lending.
Data from the Reserve Bank of India shows that total bank lending to small businesses was ??4.78 billion for the fortnight ended February 28.
Although the MSME sector contributed 30.3% of India’s gross domestic product (GDP) in fiscal year 2019, the flow of credit to small businesses has been slow for some time now. Loans to micro and small industries fell 1.1% between March 2019 and February.
The banks have suggested that these loans could be disbursed through a portal like psbloansin59minutes.com, which generates immediate approval in principle for borrowers.
The portal uses algorithms to analyze data from the Goods and Services Tax (GST) database, income tax returns (TI), and bank statements to decide eligibility. Once the backstop loan proposal is accepted by the government, banks will open their purse strings to lend to the sector and then apply for collateral coverage. Currently, the Micro and Small Business Credit Guarantee Trust Fund (CGTMSE) guarantees 50-85% of loans up to ??2 crores.
However, since banks are in favor of an online portal that uses GST data to process loan applications, part of Indian small businesses will be left out.
According to Chandrakant Salunkhe, founder and chairman of the SME Chamber of India, there are over 60 million small businesses in India, of which only 910,000 are registered on Udyog Aadhaar, a government portal for MSME registration based in Aadhaar.
Salunkhe said more than 70% of Indian small businesses do not have access to bank credit at the moment and, even if the government guarantees additional loans, these entities will be excluded because they operate in the informal sector.
“Loans through the online portal will only help MSMEs registered with TPS registrations,” he said.
While Indian lenders seek government support for small business loans, countries like the United States have already implemented a similar program.
The United States has announced $ 359 billion in loans and repayable guarantees for the administration of small businesses to help small businesses that are holding back workers under its $ 2 trillion covid-19 program.
In the UK, there is talk of offering 100% government guaranteed loans to small businesses to prevent these businesses from going bankrupt, The Guardian reported on April 19.
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