Public sector banks that are overworked to sell loans under the government’s three lakh crore program for micro, small and medium enterprises (MSMEs) before the October 31 deadline have sanctioned an average of Rs 3.75 lakh per borrower over 8.54 lakh borrower accounts in the last two weeks.
With the government offering a guarantee on loan repayments, many banks have started holding virtual town halls and activating their zone offices for appropriate clients to meet the October 31 deadline. Some banks have already issued pre-approved sanction letters to all eligible MSME clients under the Risk-Free Emergency Line of Credit Guarantee (ECLGS) program at a time when aggregate demand for credit is sluggish. The total penalties imposed by PSU banks until June 12 were Rs 32,049 crore. The total penalties would be higher because private banks, including HDFC Bank, are also on the ground to offer the loan program. Disbursements were Rs 16,031 crore to 4.23 lakh borrowers until June 12. After a mixed start, private banks are slowly ramping up their MSME activities following a meeting of Finance Minister Nirmala Sitharaman with private banks and NBFCs recently.
According to the Managing Director and CEO of the Central Bank of India, Pallav Mohapatra, the bank aims to cover all eligible accounts by July 31, 2020, well before the deadline of October 31, 2020. The bank has identified more of two lakh MSME units eligible under the scheme. “All eligible borrowers have received pre-approved sanction letters. Within 12 days of launching the program, the bank could sanction loans to 62,952 borrowers amounting to Rs 1,162 crore and disbursed Rs 544 crore, ”Mohapatra said.
The SBI said it had sanctioned GECL loans totaling Rs 15,000 crore at 1.5 lakh from MSME clients and disbursed loans worth Rs 8,700 crore. “SBI has held over 125 town hall meetings. electronic from May to date. In accordance with DFS guidelines, the SBI has held circle-level meetings to reach out to MSME clients and explain to them the various relief and financial support provided to them to tackle the Covid-19 epidemic. These meetings saw participants from around 3000 MSME clients, ”said SBI.
Bank of Baroda had said it could lend up to Rs 12,000 crore under the ECLGS. “The particular portfolio (MSME) amounts to Rs 58,000 crore. So 20% of that would be around Rs 10,000 crore to Rs 12,000 crore. This we can make available to our MSME clients in the coming times as part of the government guaranteed program, ”said the Managing Director and CEO of BoB, Sanjiv Chadha recently.
Weak credit demand, bad debts worry banks
The RBI package came at a time when demand for credit is reduced and thousands of units have lowered their shutters. With the foreclosure and collapsing demand in the economy hitting borrowers large and small, they are waiting for the economy to pick up. Rating agencies have already warned of an increase in bad debts when the loan moratorium period ends in August.
According to SBI, borrowers’ accounts must be less than or equal to 60 days past due on February 29, 2020 to be eligible for the scheme. Borrower accounts that had NPA or SMA-2 status as of February 29 are not eligible for the scheme. To be eligible, the borrower must be registered for GST in all cases. “Loans granted on an individual basis are not covered by the scheme. The government should allow individuals to enroll in the program. There are a large number of individual borrowers who are involved in the small business, ”said a private bank official.
Banks aggressively rate loans below the external benchmark tied loan rate (repo). A major factor preventing some banks, especially private banks, from fully engaging in MSME lending is the possibility of default. Credit reporting company TransUnion Cibil said loans worth Rs 232,000 crore from MSMEs were at higher risk of investing in non-performing assets (NPAs). The NPA rate for MSMEs has increased continuously over the past few years to reach 12.6% in December 2019, Cibil said in a report.