Credit score and Finance for MSMEs: Almost half of the loans disbursed beneath the federal government’s Emergency Credit score Line Assure Scheme (ECLGS) to MSMEs have been used to clear the dues of distributors offering uncooked supplies whereas one-third of loans have been used to restart companies, and the remaining quantity was used for fee of salaries and to satisfy different bills, stated the Reserve Financial institution of India’s (RBI) annual report for the monetary 12 months 2021-22. ECLGS is the flagship post-Covid credit score scheme for present MSME debtors launched in Might 2020 as a part of the Rs 20-lakh-crore particular financial Atmanibhar Bharat package deal.
Following the ECLGS announcement, MSME mortgage demand elevated sharply, significantly credit score disbursements to small enterprises with mortgage sizes of lower than Rs 10 lakh through the second quarter of FY21. In response to the info shared within the report, 45 per cent of those loans have been used to clear present vendor dues adopted by round 28 per cent to renew business operations, roughly 13 per cent in the direction of worker salaries and the remaining round 13 per cent in the direction of different bills.
Nevertheless, to assist new debtors as effectively impacted as a result of Covid pandemic, the central financial institution in February 2021 had introduced a deduction of loans given to new debtors within the MSME sector from the money reserve ratio (CRR) maintained by banks. “This measure elevated the supply of loanable funds to new MSME sector debtors, as loans to new debtors grew virtually on the identical tempo as for present debtors,” the report famous.
This exemption was out there for exposures as much as Rs 25 lakh per borrower for credit score prolonged as much as the fortnight ending October 1, 2021, for a interval of 1 12 months from the date of origination of the mortgage or the tenure of the mortgage, whichever is earlier, a press release by RBI in February had stated.
Subscribe to Monetary Categorical SME e-newsletter now: Your weekly dose of reports, views, and updates from the world of micro, small, and medium enterprises
Furthermore, ECLGS additionally helped within the restoration of pressured belongings. Out of about 15 lakh ECLGS accounts, 88 per cent have been commonplace belongings, 10 per cent have been particular point out accounts (SMAs), and a pair of per cent have been non-performing belongings (NPAs), the annual report stated. Out of complete NPAs, the transition from NPAs to plain belongings was considerably larger in ECLGS accounts than non-ECLGS accounts of the identical debtors throughout 2021-22.
Based mostly on the info shared by RBI within the annual report, 37 per cent ECLGS accounts transitioned from NPA to plain class compared to 14 per cent non-ECLGS NPA accounts that switched to plain class. Likewise, the share of NPAs evolving to SMA accounts was larger at 35 per cent for ECLGS accounts vis-a-vis 16 per cent for non-ECLGS accounts whereas when it comes to accounts, which remained NPAs, 70 per cent belong to non-ECLGS class compared to 29 per cent ECLGS accounts.