KGS ADVISORS LLP Integrity First MSMEs With Special Reference to Covid-19 Relief Measures announced by the Govt w w w . k g s a d v i s o r s . c o m
MSME (MICRO, SMALL & MEDIUM ENTERPRISES) Some Important Statistics about MSME Sector Employs more than 110 Million Manpower, Target to add ● another 50 Million by 2024 30% Contribution in India’s GDP, Target to achieve 50% by 2024 ● 45% contribution in Manufacturing of the Country ● 27% share (Rs. 17.75 Trillion) in Bank’s credit to MSME Sector ●
Challanges faced by MSMEs ! ❖ Headwinds due to Eligibility under various ❖ Proactive Steps by Govt of ❖ Lack of formal data / Demonetization and schemes and sourcing India/ RBI announcing financial information, a GST Implementation, from banks, Security/ Various Relief Measures to Must for the Banks to lead to increased Collateral etc the sector lend; Liquidity crisis A big challenge to revive ❖ working capital cycle COVID 19 caused ❖ without losing much of time havoc to the sector and energy owing to complete shut down of business and its visibility. Cash Inflows dried up, ❖ Production Loss, Increased cost ❖ Continuous Lockdown of Employment and coupled with the Manufacturing costs uncertainty further accentuated the problems of the sector Impending Default to Problems compounded due ❖ ❖ Issues of Raw Material sourcing, ❖ Lenders for Loan and to blockage of working capital Labor Availability, Product Interest Payment causing stuck with other Large Marketing & Technical Support Credit Risk down gradation Businesses 3
Other Challanges faced by MSMEs ! WARY OF FRESH UNAVAILIBILITY OF JOB LOSSES LOANS MANPOWER AS COMPANIES ARE CASH STRAPPED FOR ALMOST 3 EVEN IF THEY ARE BACKED BY WHO HAVE MIGRATED TO MONTHS NOW GOVERNMENT GUARANTEE THEIR HOME DUE TO DUE TO UNCERTAINITY SPREAD OF COVID MSME BORROWERS EXPECTATION OF MORAL OBLIGATIONS WHO DID NOT RAISE ANY WAIVING OF BILLS FOR WAGES/SALARIES LOANS THROUGH BANKS EXPECTS DIRECT RELIEF IN PAYMENT FOR CLOSURE AND NOW NEED FUNDING WAIVING OF BILLS & RENTS PERIOD EVEN WITHOUT ANY SUPPORT CASH INFLOWS 4
Rs 3 Lakh Crore Emergency Credit Line Guarantee Scheme (ECLGC) - Automatic Loans for MSME First- Come - First Served till 31 st October, 2020 and up to the overall Limit of Rs. 3 lakhs Crore is Need additional funding to exhausted meet operational liabilities built up, buy raw material and restart business In case accounts for FY 2019- 20 not audited/finalized, borrower’s declaration of turnover is sufficient To eligible MSME & borrowers covered Pradhan Mantri Mudra Yojana (PMMY) The Scheme is valid for Availability of All NBFCs which have been existing customers on Emergency Credit Line in operation for 2 years as on the books of the to Businesses/MSMEs 29th February, 2020 would Lenders. from Banks and NBFCs be eligible 5
Rs 3 Lakh Crore ECLGC - Automatic Loans for MSME Eligibility: All MSME borrowers accounts upto Rs 25 Cr as on 29 th February 2020(Cut off date), which were Standard SMA – 0 & SMA – 1 ❖ accounts and with annual Turn Overs of rs 100 Crore for FY 2019 - 2020 SMA-2 Accounts and downgraded Borrowers can also avail after clearing off their dues and bring in SMA-0 or SMA-1 Category, The ❖ Additional Loan amount to be capped up to 20% of O/S credit up to Rs 25 cr on cut off date ❖ Facility in the form of additional WCTL (in case of Banks & FIs) or additional TL in case of NBFCs. Repayment of Additional Loan to have 4 year tenor with moratorium of 12 months on Principal repayment ❖ Interest to be capped up to 9.25% from banks and 14% from NBFC ❖ 100% credit guarantee cover to Banks and NBFCs on principal and interest ❖ Scheme can be availed till 31st Oct 2020 ❖ ❖ No guarantee fee, No Processing Fee, No fresh collateral, No Insurance Some banks are contemplating for reduction in Margins on Stock, Debtors, Inventories for facilitating the loan ❖ 45 lakh units can resume business activity and safeguard jobs ❖ Loans provided in individual capacity are not covered under the Scheme. ❖ Very Simple and Easy Documentation ❖ 6
Case Study for Eligibility for Loans (Rs in Cr. ) Name of the Overall OS Overall OS DPD on Days To Financials Borrower Borrower A 30 15 30 90 Not Eligible Borrower B 30 15 62 90 Not Eligible Borrower C 25 25 59 75 Eligible Borrower D 15 10 0 80 Eligible Borrower E 20 10 0 125 Not Eligible Case Study for Amount of Loans (Rs in Cr. ) Name of the Total Max. L Total Max L. Amt Overall OS with MLIs Overall OS with ML Amt. without NOC for MLI C=20% A D= 20%B Borrower Borrower A 20 15 4 3 Borrower B 5 2 1 0.4 Borrower C 25 25 5 5 Borrower D 15 10 3 2
MEASURES ANNOUNCED BY RBI ON 22 ND MAY 2020 BANK REPO RATE REVERSE REPO-RATE SPECIAL REFINANCE FACILITY REDUCED FROM REDUCED FROM 3.75% TO ANNOUNCEMENT OF SPECIAL 4.65% TO 4.25% WHICH 3.35% BANK WILL TEMPT REFINANCE FACILITY OF 15,000 WILL LEAD TO LIQUIDITY IN TO LEND MORE INTO CRORE TO SIDBI AT REPO RATE FOR BANKS BUSINESS PERIOD OF 90 DAYS 8
Meaures announced by SEBI Measure Announced by SEBI SEBI eases post default 90 days curing period: Rating agencies may deviate from period of 90 days on a case to case basis, subject to the rating agencies framing a detailed policy in this regard. Reducing the chances of Down gradation of Credit Rating due to Cos. facing temporary cash flow crunch due to COVID 9
Relief Measures extended by 3 months 1 st JUNE TO 31 ST AUGUST 2020 EMI Moratorium of 3 ❖ A 59 Minute Loan Funding months on TL Scheme for MSME by PSU Installment banks ❖ Extension of line of credit of Group Exposure of Banks Deferment of Interest for 3 raised from 25% to 30% Rs.15000 crore to Exim bank months on WC Facility ❖ Roll over of the ₹ 15,000- crore special refinance facility Permitted Lending to SIDBI Institutions to convert the ❖ Extn. of time for payment of accumulated interest on normal imports from 6 WC in to FITL to be fully paid month to 12 months. Ease of WC Financing by ❖ Export Credit : Increase in reducing margins or maximum permissible period reassessment of WC Lending Institutions Cycle permitted to restore the of Realization of Exports margins WC to their original level 10
Rs 20,000 crore Subordinate Debt for Stressed MSMEs … Stressed MSMEs need equity support & Two Lakh MSMEs are likely to benefit promoters of the MSME will be given subordinate debt by banks. Functioning MSMEs which GOI will facilitate provision of Rs. are NPA or are stressed will 20,000 cr as subordinate debt be eligible Money will flow in business as Govt. To provide support equity/Subordinate debt to help of 4,ooo cr to CGFT for capital leveraging MSMEs to provide Credit Guarantee support to banks 11
GLOBAL TENDERS TO BE DISCONTINUED UPTO RS 200 CRORES Indian MSMEs and other companies have often faced unfair competition from foreign companies. Now, Global tenders will be discontinued in Government procurement tenders upto Rs 200 crores. Necessary amendments of General Financial Rules will be effected. This will be a step towards Self-Reliant India ( आतॎमनिरॎभर र्ा रत ) and support Make in India . This will also help MSMEs to increase their business.
RS 50,000 CR. EQUITY INFUSION FOR MSMES THROUGH FUND OF FUNDS (FOF) MSMEs face severe shortage of Equity. • Fund of Funds with Corpus of Rs 10,000 crores set up. • It Will provide equity funding for MSMEs with growth potential and viability. • FoF will be operated through a Mother Fund and few daughter funds • Fund structure will help leverage Rs 50,000 cr of funds at daughter funds level • Will help to expand MSME size as well as capacity. • Will encourage MSMEs to get listed on main board of Stock exchanges.
Other Interventions for MSME GOVERNMENT HAS MSME CURRENTLY FINTECH WILL BE E-MARKET LINKAGE BEEN CONTINUOUSLY FACE PROBLEMS OF USED TO EXCHANGE FOR MSME TO BE MONITORING MARKETING AND TRANSACTION PROMOTED TO ACT AS SETTLEMENT OF DUES LIQUIDITY DUE TO BASED LENDING A REPLACEMENT FOR TO MSME VENDORS COVID - 19. USING THE DATA TRADE FAIRS AND FROM GOVERNMENT GENERATED BY THE EXHIBITIONS. AND CENTRAL (PSUs) • E-MARKETPLACE. MSME RECEIVABLES FROM GOV AND CPSES TO BE RELEASED IN 45 DAYS. 14
Measures to Improve Liquidity to Ease FINANCIAL STRESS ! Businesses continue to face Relief to Employers in payment of financial stress as they get Provident Fund dues, -Statutory back to work. PF contribution of both employer and employee Scheme also applicable for workers Under PMGKP, payment of 12% who are not eligible for 24% EPF each of Employer & Employee support under PM Garib Kalyan contributions made into EPF Package and its extension. accounts of eligible establishments This translate into relief to about enhances liquidity Support of 6.5 lakh establishments covered Rs 6750 crores to 3.67 lakh under EPFO and about 4.3 crore establishments and for 72.22 such employees lakh employees. 15
Existing and Revised Definition of MSME 50 Cr 250 Cr 16
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