Subordinated Debt Scheme of Rs 20,000 cr for MSMEs: Government says proposal to amend guidelines is underway

Credit and finance for MSMEs: Subordinated debt refers to subordinated debenture or junior securities, a type of unsecured loan or bond that ranks below other senior loans or securities in terms of claims on assets or income.

Credit and financing for MSMEs: The Rs 20,000 Crore Credit Guarantee Scheme for Subordinated Debt (CGSSD) launched in June 2020 has yet to pick up speed. The scheme, intended to support struggling MSMEs or Non-Performing Asset Accounts (NPAs), was only able to issue guarantees amounting to Rs 81.78 crore to 756 borrowers as of December 31, 2021, according to the 2021-22 annual report of the Ministry of MSMEs. . Therefore, “the proposal to modify the guidelines of the scheme is in progress”, adds the report. The government initially considered supporting 2 lakh MSMEs under the scheme until March 31, 2021, but later extended the mandate until March 31, 2022, “based on requests received from stakeholders”, the official said. government last year in a statement.

In order to provide guarantee cover for loans given to promoters of eligible MSME units, the government provided Rs 4,000 to set up a distressed assets fund, of which only Rs 157.41 crore was paid to the Credit Guarantee Trust for Micro and Small Enterprise (CGTMSE) in March 2021 which operates the CGSSD, according to the report. Overall, the government aimed to guarantee loans up to Rs 20,000 crore. The scheme provides funds for the relaunch of MSME accounts that have become a Special Mention Account (SMA)-2 or NPA as of April 30, 2020. While 90% of the guarantee coverage comes from the scheme, the 10% balances are contributed by the promoter under the plan.

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SMAs signal incipient stress in the unit that leads to debt service defaults. While SMA-0 are accounts with partially or fully overdue payments of 1-30 days, SMA-1 and SMA-2 accounts have overdue payments of 31-60 days and 61-90 days respectively. Subordinated debt refers to a subordinated debenture or junior securities, a type of unsecured loan or obligation that ranks below other senior loans or securities in terms of claims to assets or income.

The CGSSD was introduced just one month after the government launched the Emergency Line of Credit Guarantee Scheme (ECLGS) in May 2020 to provide collateral-free guaranteed loans to existing MSME borrowers. Sunil Mehta, Managing Director of the Association of Indian Banks, told Financial Express Online last year that compared to the CGSSD, the ECLGS has proven to be more MSME-friendly. “Instead of opting for restructuring, the people (MSMEs) preferred the ECLGS as it offered credit ready to stay afloat for the next two to three years and also an option for ECLGS beneficiaries to also opting for restructuring. It was like a ready plate of food that you can have against subordinated debt that was like you could starve for a while and build your resistance,” Mehta said.

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John A. Bogar