MSME credit guarantee scheme suffers as banks fear NPAs
Banks are extra careful in rolling out any new loans. The NPAs in the banking system is already at 9 per cent plus. The NPAs in the small loan is much higher at over 15 per cent
- Jun 18, 2020,
- Updated Jun 19, 2020 2:00 PM IST
The Rs 3 lakh crore emergency credit guarantee scheme to help the micro, small and medium enterprises (MSMEs) under the covid relief scheme should ideally be an easy pick for any bank to grant additional 20 per cent loans without any credit risk.
There is a 100 per cent guarantee cover with no provision for risk weights from the capital.
But at the ground situation is different. While low demand could be a reason as lockdown is still in force, there are also credit assessment reasons for the low disbursement. The banks are not taking the guarantee at its face value as they will get only the 75 per cent of the amount at the time of default while the balance would be given after the recovery of the loan. Therefore, there are additional checks and balances introduced by some of the bank before clearing any application for additional facility.
The Rs 3 lakh crore emergency credit guarantee scheme to help the micro, small and medium enterprises (MSMEs) under the covid relief scheme should ideally be an easy pick for any bank to grant additional 20 per cent loans without any credit risk.
There is a 100 per cent guarantee cover with no provision for risk weights from the capital.
But at the ground situation is different. While low demand could be a reason as lockdown is still in force, there are also credit assessment reasons for the low disbursement. The banks are not taking the guarantee at its face value as they will get only the 75 per cent of the amount at the time of default while the balance would be given after the recovery of the loan. Therefore, there are additional checks and balances introduced by some of the bank before clearing any application for additional facility.