Union Finance Minister Nirmala Sitharaman addressing a press conference in New Delhi on May 13, 2020.
Union Finance Minister Nirmala Sitharaman addressing a press conference in New Delhi on May 13, 2020.|IANS
Business & Economy

Sitharaman announces collateral-free loans up to a total of Rs 3 lakh crore for MSMEs, businesses

FM unveils some details of Rs 20 lakh crore economic package announced by Modi

NetIndian News Network

New Delhi, May 13, 2020

Stating that businesses, especially Micro, Small and Medium Enterprises (MSMEs) have been badly hit by the lockdown imposed to contain the spread of the coronavirus (COVID-19) pandemic, Finance Minister Nirmala Sitharaman today announced collateral-free automatic loans for them up to a total of Rs 3 lakh crore.

Addressing a press conference here, Sitharaman said businesses and MSMEs need additional funding to meet operational liabilities built up, buy raw material and restart their business.

Today's media interaction was meant to unveil the details of the Rs 20 lakh crore special economic package that Prime Minister Narendra Modi announced during his address to the nation last night to help the country tide over the economic crisis wrought by the pandemic and to emerge as a self-reliant nation in the post-COVID world.

Sitharaman will announce the details in a series of press conferences over the next few days, beginning with today's interaction that largely dealt with the MSME sector, which has been particularly badly hit by the ongoing crisis and was crying out for urgent assistance.

She also announced measures for relief and credit support related to EPF, NBFCs, housing finance corporations, MFIs, power discoms, contractors and the real estate sector as well as some relief measures in the area of direct taxes.

She said the government had decided that there would be an emergency credit line to businesses and MSMEs from banks and non-banking financial companies (NBFCs) up to 20% of the their entire outstanding credit as on February 29, 2020.

Borrowers with up to Rs. 25 crore outstanding and Rs. 100 crore turnover will be eligible for the loans which will have a four-year tenor with moratorium of 12 months on repayment of principal. The interest will be capped.

She said there would be a 100% credit guarantee cover to banks and NBFCs on principal and interest. The scheme can be availabled till October 31, 2020 and will not require any guarantee fee or fresh collateral. This would enable 45 lakh units to resume business activity and safeguard jobs, he said.

Sitharaman also said stressed MSMEs needed equity support and the Government would facilitate provision of Rs 20,000 crore as subordinate debt, which is expected to benefit about two lakh MSMEs.

She said functioning MSMEs which are NPA or are stressed would be eligible. The Government will provide a support of Rs 4,000 crore to the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which will provide partial credit guarantee support to banks.

Promoters of the MSME will be given debt by banks, which will then be infused by promoter as equity in the unit.

The Minister also announced a Rs 50,000 crore equity infusion for MSMEs through a Fund of Funds (FoF), which will be set up a corpus of Rs 10,000 crore. Pointing out that MSMEs face severe shortage of equity, she said the fund would provide equity funding for MSMEs with growth potential and viability. The FoF willbe operated through a Mother Fund and a few daughter funds.

The fund structure will help leverage Rs 50,000 crore of funds at the daughter funds-level and help to expand MSME size as well as capacity. It will encourage MSMEs to get listed on main board of stock exchanges, she said.

Sitharaman also announced a new definition of MSMEs in response to the long-standing demand for such a revision, pointing out that the low threshold in MSME definition had created a fear among them about graduating out of the benefits, killing in the process the urge to growth.

Accordingly, the government has decided to revise the definition of MSMEs, revise upwards the investment limit and introduce an additional criteria of turnover. The distinction between manufacturing and service sector will be eliminated.

As per the new changes, businesses with investment of less than Rs 1 crore and turnover of Rs 5 crore would be classified as micro enterprises. Under the existing criteria, a company with investment of less than Rs 25 lakh in the manufacturing sector and less than Rs 10 lakh in the services sector were considered micro enterprises.

The investment limit of small enterprises has been increased to Rs 10 crore, and the companies would have to have turnover of less than Rs 50 crore.

Further, the investment limit for medium enterprises has been increased to Rs 20 crore and the turnover limit has been kept at Rs 100 crore.

In another important step, the Government has decided to disallow global tenders up to Rs 200 crore, pointing out that Indian MSMEs and other companies had often faced unfair competition from foreign companies.

The Minister said necessary amendments of the General Financial Rules would be effected and stressed that this would be a step towards the Self-Reliant India (Aatmanirbhar Bharat) that Modi spoke about in his address last night and in keeping with his government's flagship Make in India programme. This would also help MSMEs increase their business, she said.

Saying that MSMEs currently face problems of marketing and liquidity due to COVID-19, Sitharaman said e-market linkage for them would be promoted to act as a replacement for trade fairs and exhibitions.

Fintech will be used to enhance transaction-based lending using the data generated by the e-marketplace, she said.

She said the Government has been continuously monitoring settlement of dues to MSME vendors from Government and Central Public Sector Enterprises (CPSEs). She said MSME receivables from Government and CPSEs would be released in 45 days.

Sitharaman said that, under the Pradhan Mantri Garib Kalyan Package (PMGKP), payment of 12% of employer and 12% employee contributions was made intoEPF accounts of eligible establishments. This was provided earlier for salary months of March, April and May. This support will now be extended by another three months to salary months of June, July and August 2020, she said, pointing out that businesses continued to face financial stress as they got back to work.

"This will provide liquidity relief of Rs 2,500 crore to 3.67 lakh establishments and for 72.22 lakh employees," she said.

"Businesses need support to ramp up production over the next quarter. It is necessary to provide more take-home salary to employees and also to give relief to employers in payment of Provident Fund dues.

"Therefore, statutory PF contribution of both employer and employee will be reduced to 10% each from existing 12% each for all establishments covered by EPFO for the next three months. CPSEs and State PSUs will, however, continue to contribute 12% as employer contribution.

"This scheme will be applicable for workers who are not eligible for 24% EPF support under PM Garib Kalyan Package and its extension. This will provide relief to about 6.5 lakh establishments covered under EPFO and about 4.3 crore such employees.

"This will provide liquidity of Rs 6750 crore to employers and employees over three months," she said.

Sitharaman also announced a Rs 30,000 crore Special Liquidity Scheme for NBFCs, HFCS and MFIs who are finding it difficult to raise money in debt markets.

Under this scheme, investment will be made in both primary and secondary market transactions in investment grade debt paper of NBFCs/HFCs/MFIs. It will supplement RBI and Government measures to augment liquidity, she said, adding that the securities would be fully guaranteed by the Government of India (GOI).

"This will provide liquidity support for NBFCs/HFC/MFIs and mutual funds and create confidence in the market," she said.

Sitharaman also announced a Rs 45,000 crore Partial Credit Guarantee Scheme (PCGS) 2.0 for NBFCs.

She said NBFCs, HFCs and MFIs with low credit rating require liquidity to do fresh lending to MSMEs and individuals. The existing PCGS scheme will be extended to cover borrowings such as primary issuance of Bonds/ CPs (liability side of balance sheets) of such entities.

First 20% of loss will be borne by the Guarantor, that is, the Government of India. AA paper and below, including unrated paper, will be eligible for investment, which is especially relevant for many MFIs.

She said the scheme would result in liquidity of Rs 45,000 crore.

Sitharaman also announced a Rs 90,000 crore liquidity injection for power distribution companies (DISCOMs).

She noted that the revenues of DISCOMs had plummeted and they are facing an unprecedented cash flow problem, accentuated by demand reduction.

DISCOM payables to power generation and transmission companies are currently around Rs 94,000 crore.

She said PFC and REC would infuse liquidity of Rs 90,000 crore to DISCOMs against receivables. She loans would be given against State guarantees for the exclusive purpose of discharging liabilities of DISCOMs to generation companies (GENCOs).

Some of the other measures she announced are: Digital payments facility by Discoms for consumers, liquidation of outstanding dues of State Governments, Plan to reduce financial and operational losses; Central Public Sector Generation Companies shall give rebate to Discoms which shall be passed on to the final consumers (industries).

In relief to contractors, there will be an extension of up to 6 months (without costs to contractor) to be provided by all Central Agencies (like Railways, Ministry of Road Transport & Highways, Central Public Works Dept, etc).

This will cover construction/ works and goods and services contracts and obligations like completion of work, intermediate milestones etc. and extension of concession period in PPP contracts. Government agencies will partially release bank guarantees, to the extent contracts are partially completed, to ease cash flows.

The Government has also announced an extension of registration and completion date of real estate projects under RERA because, due to the adverse impact of COVID, projects stand the risk of defaulting on the timelines.

Accordingly, the Ministry of Housing and Urban Affairs will advise States/UTs and their Regulatory Authorities to treat COVID-19 as an event of ‘Force Majeure’ under RERA and extend the registration and completion date suo motu by 6 months for all registered projects expiring on or after 25th March, 2020 without individual applications.

Regulatory authorities may extend this for another period of upto 3 months, if needed. They should issue fresh ‘Project Registration Certificates’ automatically with revised timelines and extend timelines for various statuary compliances under RERA concurrently.

"These measures will de-stress real estate developers and ensure completion of projects so that homebuyers are able to get delivery of their booked houses with new timelines," the Minister said.

Sitharaman also announced Rs 50,000 crore of liquidity through TDS/TCS rate reduction.

In order to provide more funds at the disposal of the taxpayers, the rates of Tax Deduction at Source (TDS) for non-salaried specified payments made to residents and rates of Tax Collection at Source (TCS) for the specified receipts shall be reduced by 25% of the existing rates.

Payment for contract, professional fees, interest, rent, dividend, commission, brokerage, etc. shall be eligible for this reduced rate of TDS. This reduction shall be applicable for the remaining part of the FY 2020-21 i.e. from tomorrow to 31st March, 2021. This measure will release liquidity of Rs. 50,000 crore, she said.

In other Direct Tax measures, she said all pending refunds to charitable trusts and non-corporate businesses and professions including proprietorship, partnership, LLP and Co-operatives shall be issued immediately.

The due date of all income-tax return for FY 2019-20 will be extended from 31st July, 2020 & 31st October, 2020 to 30th November, 2020 and Tax audit from 30th September, 2020 to 31st October, 2020.

Date of assessments getting barred on 30th September, 2020 has been extended to 31st December, 2020 and those getting barred on 31st March, 2021 will be extended to 30th September, 2021.

The period of the Vivad se Vishwas Scheme for making payment without additional amount will be extended to 31st December, 2020.

Sitharaman began by recalling Modi's announcement yesterday of the Rs 20 lakh crore special economic package, equivalent to 10% of India's GDP, and his call for a self-reliant India. She said the package would cater to various sections, including cottage industry, MSMEs, labourers, middle class and industries, among others.

She also recalled his call to the people to become "vocal about local products".

She went on to detail the steps already taken by the Government, such as the Pradhan Mantri Garib Kalyan Package to help the poor fight the battle against the coronavirus. She also mentioned the various measures taken by the Reserve Bank of India (RBI).

Modi had, in his address, made it clear that the Rs 20 lakh crore package would include the measures already taken by the Government and the RBI to cope with the COVID crisis.