Slowdown in loans sanctioned to struggling businesses, MSMEs

There has been some slowdown in loans sanctioned to struggling businesses and micro, small and medium enterprises (MSMEs) over the months of October and November under the ₹3 lakh crore emergency credit guarantee scheme announced by the government in May this year.

In its first three months of operations, the Emergency Credit Line Guarantee Scheme (ECLGS) Fund had led to sanction of soft term loans of Rs.1.86 lakh crore, of which Rs.1.32 lakh crore had been disbursed to Rs.27.09 lakh borrowers by September 29.

Between September 29 and December 4, loans sanctioned under the scheme rose by just Rs.19,094 crore to a little over Rs.2.05 lakh crore. These sanctions pertain to 80.93 lakh accounts.

Disbursals during this period increased by Rs.26,380 crore with over 13.4 lakh more borrowers benefiting, taking the total amount paid out under the scheme to nearly Rs.1.59 lakh crore. The total borrowers receiving funds under the scheme now stand at Rs.40.49 lakh.

Key element

The ECLGS scheme is a key element of the government’s stimulus and support measures for firms battered by the lockdown restrictions put in place in March to curb the COVID-19 pandemic. It provides additional working capital finance for 20% of a borrower’s outstanding credit as on February 29, 2020. The financing is in the form of a term loan at a concessional rate of interest.

In November, the government had announced the expansion of the scheme to cover even larger firms operating in healthcare and the 26 most-stressed sectors identified by the K.V. Kamath Committee appointed by the central bank. Firms with outstanding loans of Rs.50 crore to Rs.500 crore from sectors such as construction, real estate, textiles, power, cement, hotels and tourism, are eligible for support.

Aid to NBFCs

Similarly, the Rs.45,000-crore Partial Credit Guarantee Scheme 2.0 to enable non-banking finance companies (NBFCs), housing finance companies and micro-finance institutions to undertake fresh lending to MSMEs and individuals has recorded a tepid offtake between September 25 and December 4.

Banks had approved purchase of loan portfolios of such entities worth Rs.25,505 crore and purchased portfolios worth Rs.16,401 crore by September 25. Transactions being negotiated or awaiting approval at the time were around Rs.3,171 crore at the time.

As on December 4, the portfolios approved for purchase stood at Rs.27,794 crore, rising by just Rs.2,289 crore. The portfolios at the negotiation/approval stage had also declined to Rs.1,400 crore.

The latest numbers, shared with Finance Minister Nirmala Sitharaman at a review meeting on the progress of the various elements of the Atma Nirbhar Bharat package on December 11 didn’t include the extent of approved portfolios purchased since the Minister’s last review meeting on the issue held on October 1.

The government has now extended the time line for banks to purchase bonds or commercial papers under the scheme till December 31.



PHD Chamber of Commerce and Industry(PHDCCI) is one of the Premier Chambers in India to have been accredited with Diamond Grade by NABET(QCI), at national and international level.

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