SIDBI Proposes Special Purpose Vehicle To Disburse Government-Guaranteed MSME Loans
SIDBI has proposed an interest rate cap of MCLR+1 percent for banks and 14 percent for NBFCs to disburse loans under the scheme.
The Small Industries Development Bank of India has proposed a special purpose vehicle, through which emergency, collateral-free government-guaranteed loans to small businesses can be rolled out.
Earlier this week, the government announced that it would provide 100 percent guarantee to Rs 3 lakh crore in loans to small businesses to ensure they get access to working capital. The scheme, part of the government’s Rs 20 lakh crore economic support package, is intended to provide financing support to small businesses struggling due to disruptions caused by the Covid-19 outbreak.
As per a draft proposal circulated by SIDBI, a copy of which has been reviewed by BloombergQuint, an SPV or Trust would be set up to implement the scheme. SIDBI has pegged the initial seed capital for the fund at Rs 15,500 crore to be contributed by the government.
The trust would provide an additional 15 percent of working capital for those that have up to Rs 1 crore in loans pending. For those with Rs 1-25 crore in outstanding credit facilities, an additional 10 percent will be provided, according to the proposal.
The suggestions have been sent by SIDBI to the government and other stakeholders, said an official who spoke on condition of anonymity. Final guidelines may be issued after feedback from the government in coming week, the official said.
MSMEs can avail of the scheme until Oct. 31, 2020.
While announcing the first tranche of the governments’ stimulus package on May 13, Finance Minister Nirmala Sitharaman said that MSMEs, with an annual turnover of Rs 100 crore or less, will be eligible to receive these collateral-free government-backed loans.
“These loans will have a 100 percent credit guarantee as a cover given to banks and non-banking finance companies on principal and interest. There are no guarantee fees or fresh collateral required. This will benefit 45 lakh MSME units so that they can resume business activity and also safeguard jobs,” Sitharaman said.
Proposed Operational Details
The draft document lays down the proposed interest rate caps and tenure for the loans given out under the scheme.
- For banks, the interest rate would be capped at the marginal cost lending rate plus 1 percent.
- For NBFCs, it will be capped at 14 percent.
- Funding can be provided for a maximum period of three years.
- All MSMEs with outstanding loans less than Rs 25 crore can avail of the scheme.
- If a borrower has existing limits with more than one lender, the facility can be availed from only one of its lenders.
- No guarantee fee will be charged for the facility.
- Risk weight for loans under this facility will be taken as zero since they are backed by the sovereign. RBI approval will be needed for this.
- Should a lender need to invoke a guarantee, they can approach the trust. 75 percent will be paid upfront within 30 days, subject to claims being found in order. The remaining 25 percent will be paid on completion of recovery proceedings.
- Since no additional collateral is being sought, the lender will have second charge on the assets financed.
According to data provided by SIDBI in its draft proposal, loans to companies which have individual borrowings up to Rs 25 crore, amount to approximately Rs 16.4 lakh crore. Of this, public sector banks have a share of 48.2 percent, private sector banks of 38.9 percent and NBFCs of 12.8 percent. The proposed scheme should be able to cover 90 percent of MSMEs, it added.