Indian banks asked to prepare emergency credit lines for SMEs

With the coronavirus pandemic causing nationwide lockdown and affecting businesses, the government has decided to pitch in with its support for the corporate sector to prevent any liquidity problems for them.

The Centre has asked banks to be ready to extend emergency credit lines on easier terms to corporate borrowers so that business activity didn’t suffer on account liquidity squeeze. It has discussed the issue with the Reserve Bank of India (RBI).

The State Bank Of India (SBI) has already come out with an ad hoc loan facility ‘Covid-19 Emergency Credit Line (CECL)’, which is aimed at meeting the temporary liquidity mismatch caused by Covid-19 effects.

Three other public sector banks − Union Bank, Indian Bank and Bank of India − have also come out with emergency credit lines to largely support fund needs of SMEs.

“More banks will come with such schemes given that small and medium businesses are taking the brunt of lockdowns most and facing a situation where they may have to go for massive cost cutting as well as layoffs,” said a government source.

The SBI emergency credit line will remain operational till June 30. A borrower can get maximum loan of Rs 200 crore or 10 per cent of the existing fund-based working capital limits, by paying fixed 7.25 per cent interest.

The credit line will remain open for a year and repayment starts only after six months in six instalments. The emergency loan facility is aimed at helping MSME borrowers.

The schemes of other three banks are also similar.

The All India Manufacturers’ Organisation (AIMO) on Wednesday urged the government to support the MSME sector with incentives in view of the ongoing nationwide lockdown.

In a statement, the trade body said: “AIMO made a plea to the government that if the right support packages, incentives and measures were not provided to the MSMEs the lockdown could well turn into a ‘ShutDown India’.”

Shrikant Dalmia, AIMO’s Zonal Vice President, West said that the organisation acknowledges the steps taking by Finance Minister Nirmala Sitharaman regarding the easing of compliance norms, but noted that several sectors including automobile, aviation, hospitality, apparel, consumer durables, tourism, and construction are among the worst hit by the epidemic and all the MSMEs are either directly or indirectly dependent on these sectors.

Sushil Vyas, Secretary of the trade body, said that it has requested the Finance Minister to waive bank interest for MSMEs and instruct banks not to make entrepreneurs’ NPAs for lack of interest payment till Dec.31, 2020.

Meanwhile the Union Finance Minister Nirmala Sitharaman on Thursday said that the Centre will direct state governments to utilise the construction workers’ welfare fund to support these workers against economic disruption due to the 21-day lockdown in the wake of the coronavirus crisis.

Addressing the media here, Sitharaman said that the fund created by a central government’s Act currently has about Rs 31,000 crore in it. A total of around 3.5 crore workers are registered under the Act.

“Obviously, because of the way we have taken a call to contain the coronavirus with a lockdown so that people stay at home and don’t expose themselves to the risk, as a result, many building and construction workers may be feeling the impact because their work has come to a halt,” she said.

“There is a welfare fund for building and other construction workers’ welfare. We intend to give directions to the states to utilise this fund to provide assistance and support to those workers in the construction and building sectors to protect them against any economic disruption.”

Several experts and industry players, including developers, had demanded economic support to the construction workers whose work has come to a standstill due to the lockdown.

Along with other major announcements, the minister also announced that the government has directed states to use district mineral fund for the coronavirus medical expenses.

States will use district mineral fund for medical screening, facilities, and healthcare needs, she said.

Concerns have been raised in the past few days over the medical infrastructure in the country to deal with the disease and the required funds for the requisite facilities.

Indo-Asian News Service